How to Sue for Stock Broker Fraud
When you use a stock broker to help manage your investments, that broker owes a fiduciary duty to you that includes giving you accurate information and getting your permission before buying or selling securities in your account. Stock brokers who breach these duties may be liable for fraud. However, in many instances you won't be able to sue your stock broker for fraud because the customer agreement you signed to begin the relationship included an arbitration clause that prohibits lawsuits. If your agreement lacks such a clause, it is possible for you to sue for stock broker fraud – although you still may prefer the relative simplicity of arbitration instead.
Filing a Report with Regulatory Authorities
Report the problem to the brokerage firm.If your stock broker is employed by a brokerage firm, that firm has a duty to supervise its employees and combat fraud within its ranks.
- The Financial Industry Regulatory Authority (FINRA), an independent regulatory organization with congressional authorization to regulate the securities industry, requires all registered brokerage firms to implement policies and procedures to monitor their brokers' activities and prevent investment fraud.
- You may want to contact the firm before you send a letter and find out if it has a specific procedure for submitting complaints about brokers. This information also may have been included in the materials you were given when you opened your account.
- Submit your information to the brokerage firm in writing. Include your name, contact information, and account number, and describe the events or actions taken by your broker that you believe were fraudulent.
- Give the firm a deadline by which to respond to your claim, and make a copy of your letter before you send it.
File a complaint with the Securities and Exchange Commission (SEC).The SEC has the authority to enforce federal securities laws and will investigate potential violations.
- You can file a complaint online using the SEC's tips, complaints, and referrals portal at .
- You also can write your complaint and mail it to SEC, 100 F Street NE, Washington, DC, 20549-5990.
- In your complaint, include your name, address, phone number, and email address, as well as the same information for the stock broker or brokerage firm about which you're filing your complaint.
- Include all relevant information about the incident you characterize as fraud, including any actions taken by the brokerage firm to address the problems you've had with your stock broker.
- You may attach any documentation to your complaint that you feel supports your position or provides evidence of stock broker fraud.
- Keep in mind that if you submit your report anonymously, the SEC will be unable to help you recover any losses you may have or otherwise contact you personally if the investigation necessitates further questions.
File a complaint with the FINRA Investor Complaint Center.
- You can access FINRA's online complaint center at .
- If you prefer, you also can print the complaint form and mail it to FINRA at 9509 Key West Avenue, Rockville, MD 20850-3329, or fax it to 866-397-3290.
- Your complaint should include your name and contact information as well as the name and contact information of the stock broker or brokerage firm about which you are complaining.
- Provide details about the events and circumstances surround the fraudulent activity. You can attach any documents that support your complaint.
- The organization also has a helpline for seniors, who may be particularly vulnerable to fraud. You can call 844-574-3577 during normal business hours and an agent will assist you.
- Keep in mind that there are no guarantees you will get any of your money back by filing a complaint, or that FINRA will take any disciplinary actions or impose sanctions on the stock broker or brokerage firm as a result of your complaint.
Contact your state securities regulator.In addition to federal laws, your state also has laws in place to protect investors from fraudulent activities or breach of fiduciary duty by stock brokers and brokerage firms.
- State regulators are members of the North American Securities Administrators Association, which also has mediation and arbitration services available.
- To find your state's securities regulator, go to . Click on your state to visit the website of your state's securities commission and learn more about filing a state complaint.
Using FINRA Simplified Arbitration
Consider consulting an attorney.Although you should be able to navigate FINRA's simplified arbitration procedures on your own, you may have more success if you hire an attorney.
- Generally, simplified arbitration is available if your claim is for less than ,000. If your losses are greater than that amount, arbitration procedures can be more complex and you should probably hire an attorney to ensure you're able to get as much of your money back as possible.
- While many lawyers are willing to take strong cases on contingency, about a third of your award or settlement will go to attorney's fees. Also keep in mind that most attorneys won't take cases on contingency that are worth less than 0,000.
- In arbitration proceedings, you may be able to use a law school clinic free of charge. FINRA's guide includes a list of law schools that have securities arbitration clinics.
Read the FINRA Code of Arbitration Procedure.FINRA has published a customer's edition of its code in plain language, which you should study particularly if you've decided not to hire an attorney.
- The customer code governs arbitrations between stock brokers, brokerage firms, and other financial industry professionals and their customers.
- You can access a copy of the customer code at .
- FINRA also publishes an investor's guide to disputes, which you can download at . This guide contains answers to many frequently asked questions investors have regarding FINRA's arbitration process.
- If you have questions at any point about FINRA's arbitration procedures, you can talk to one of FINRA's staff attorneys. Although they cannot provide you with legal advice or assistance on your particular case, they can tell you about FINRA's procedural requirements.
- Keep in mind that FINRA's arbitration process is only available to investors who have disputes with a registered stock broker or brokerage firm and have signed an enforceable arbitration agreement. This agreement typically is listed as a clause in the customer agreement you signed when you opened your account.
Write your statement of claim.There is no required format for your statement of claim, which you may even submit as a letter provided it includes all required information.
- To be valid and complete, your statement of claim must include your name, your current home address, and your home address at the time the events that caused the dispute took place.
- Your statement also must include the basic facts of your dispute and the amount of money you believe you are owed in damages.
- Be sure to include the dates the incidents took place. Your claim is not eligible for arbitration unless the events that gave rise to your claim happened within the past six years.
- You can attach any documents, such as account statements or correspondence, that support your claim.
- Information about yourself and your investment habits also may influence your case. For example, if you're a sophisticated investor who frequently trades in risky or volatile stocks, your case against your stock broker typically won't be as strong as if you're a less affluent, conservative investor who's simply trying to save for retirement.
Complete other required forms.Although your statement of claim has no required format, FINRA has a prepared Claim Information Form and Submission Agreement that must accompany your statement of claim.
- The Uniform Submission Agreement states that you agree to follow FINRA's procedural rules and be bound by the decision of the arbitrator.
- The Claim Information Sheet is a summary form used by FINRA staff to process your claim.
- You can download these forms at .
Submit your application packet.After you've completed all the required documents, you must file them with FINRA along with the applicable filing fee to request arbitration.
- You must submit originals of all documents as well as the requisite number of copies – one for each of the respondents and one for each arbitrator. The number of arbitrators you will have depends on the amount of your claim.
- Make sure your originals and all copies are signed and dated.
- Your application packet must be accompanied by a filing fee, which ranges between and ,800 depending on the amount of your claim. You can determine the amount of your filing fees by using FINRA's online fee calculator, available at .
- If you cannot afford the fees, you can apply for a hardship waiver. You must make a written request and include a copy of your most recent tax return, two of your most recent pay stubs, and any other documentation that demonstrates financial hardship such as evidence of a wage garnishment or lien.
- You can submit your application packet online at .
Wait for a response from the broker or firm.FINRA will serve your statement of claim on the stock broker or brokerage firm, who have 45 days from the date of receipt to file an answer.
- The answer must include the respondent's version of events, as well as any defenses or reasons they believe you are not entitled to the money you seek. Respondents also must file a signed Uniform Submission Agreement.
- Respondents may attach any documents that support their arguments. They also may assert any counterclaims they have against you, each other, or other parties related to your claim.
Consider any settlement offers.The vast majority of claims are settled before they ever reach the final stages of arbitration.
- Keep in mind that you have no guarantee of winning anything as a result of arbitration. Additionally, challenging an arbitration decision is extremely difficult once it's delivered because challenges are only permitted in very limited circumstances, and must be filed in federal court within three months of the arbitrator's decision.
- FINRA will refund a portion of your filing fees if your claim is settled or withdrawn more than 10 days before the date your arbitration hearing is scheduled.
Filing a Lawsuit
Gather information.Before you talk to an attorney, you will need information about the fraud itself, as well as your customer agreement and any other documents related to your investment account and your relationship with your stock broker.
- If you previously filed complaints with any regulatory agencies, you should include any documentation related to that report and the outcome of any investigation.
- Create a log with a timeline of events in the transaction or transactions that you believe were fraudulent, including any account statements or other information that documents each event.
- You may want to write up an honest profile of yourself as an investor, including the reasons you wanted to invest and the types of investments you'd consider suitable. This can help your attorney analyze whether your stock broker paid attention to your needs and interests when trading on your account or tried to trick you into a riskier investment than you could handle.
Evaluate the possibility of a class action.In some situations, such as if you were the victim of a Ponzi scheme, there may potentially be hundreds of other investors who suffered similar losses and would be willing to join your lawsuit.
- If you believe there is a possibility that your claim could merit a class action lawsuit, talk to an attorney who specializes in representing class action plaintiffs. The rules for filing and litigating class actions are extraordinarily complex, and fighting a class action requires significant resources, which is why there are law firms that work in class actions exclusively.
Hire an attorney.Not only are securities fraud laws complex, but you can be assured the stock broker and his or her brokerage firm will have an army of attorneys on their side. If you decide to sue for stock broker fraud, you shouldn't do so without an attorney.
- A qualified attorney with experience in securities law also will be able to tell you how long you have to file a claim for recovery. The legal deadline, or statute of limitations, to file a claim depends to a large extent on the facts and circumstances of your case.
- If you have friends or colleagues in the securities industry, you may want to ask one of them for a recommendation. Otherwise, you can begin your attorney search on the website of your state or local bar association. Typically these websites include a searchable directory of licensed attorneys in specific practice areas.
- Many bar associations also have attorney referral programs that can point you to attorneys in your area who specialize in cases similar to yours.
Work with your attorney to draft your complaint.Your attorney will need as much information and documentation as you have to accurately formulate the allegations in your complaint.
- Provide your attorney with all the documentation you have, including account statements and balance sheets so he or she can calculate your losses and determine the damages you are owed by the stock broker or brokerage firm for the fraudulent acts.
- Your complaint will include your name and address as well as the names and addresses of everyone you are suing, which may include not only your stock broker but also the brokerage firm where he or she works.
- The bulk of your complaint will consist of your allegations, written in numbered paragraphs with a single factual statement per paragraph. These allegations must add up to a violation of state or federal securities law.
- After listing the allegations, your complaint will identify the law violated and your legal theory as to why the allegations you listed constitute a violation.
- The last paragraphs of your complaint will describe the monetary amounts to which you believe you are entitled as a result of the stock broker's actions.
File your complaint.To initiate your lawsuit, you must file your complaint and any other required documents with the clerk of the court in which your case will be heard.
- Once your complaint is filed, your case will be assigned to a judge and given a case number. The clerk will issue a summons for each defendant you've listed in your lawsuit.
- You must pay filing fees to file your lawsuit. If your attorney is working on contingency, he or she will add these to the costs to be deducted from any settlement or award you receive – otherwise you're responsible for paying them or applying for a waiver.
- Filing fees typically are several hundred dollars, depending on the court in which you are filing your case.
Have the defendant served.Within a short period of time after you've filed your complaint, you must have it delivered to the stock broker or brokerage firm you are suing for fraud.
- If you're filing your lawsuit in federal court, a U.S. marshal will hand-deliver the complaint and summons to the defendant. In state court, this duty typically is performed by sheriff's deputies.
Receive the defendant's answer.Depending on the court in which you file your lawsuit, the defendant will have between 20 and 30 days to file a response to your lawsuit.
- Typically the defendant will deny most, if not all, of your allegations as well as list defenses as to why he or she is not liable for the losses you've suffered.
- The defendant may file a motion to dismiss, in which case you must respond to the motion and attend a hearing to defend your lawsuit. To successfully overcome this hurdle, you must be able to demonstrate to the judge that your case has merit and the allegations in your complaint, if proven, constitute a violation of state or federal securities law.
Consider any settlement offers.At any point after you file your complaint, you can expect to get a settlement offer from the stock broker or brokerage firm you sued.
- The confidential nature of settlements should appeal to the stock broker or brokerage firm, especially if your lawsuit survives a motion to dismiss. Most securities professionals would rather settle quietly than litigate a very public fraud lawsuit.
- Additionally, if you've not filed a class action, it's possible your stock broker might be concerned that one might materialize – particularly if he or she led other clients down the same investment path as you.
- Your attorney must keep you apprised of any and all settlement offers, and will give you his or her advice on whether you should accept or reject the offer. However, keep in mind that ultimately you have the final word on whether to take a settlement.
- When evaluating a settlement offer, take into consideration the time and expense of continued litigation, as well as the uncertainty that you will get what you've asked for when you go to trial.
Video: Can I Sue My Stock Broker For Investment Losses? Call 312-332-4200
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