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4 steps to securities arbitration

Money puzzle, separate pieces
Highlights
  • Evaluate whether you have a legitimate claim against your broker.
  • Decide if you should file the case yourself or hire an attorney.
  • A claim is only as good as the evidence you have to support it.

If your stockbroker puts you in radically unsuitable investments, churns your account repeatedly or places your money in a Ponzi scheme, you can file for securities arbitration to try to get your money back, says Joel Ewusiak, an attorney with Forizs & Dogali, P.A., a law firm in Tampa, Fla.

Administered by the Financial Industry Regulatory Authority, or FINRA, a brokerage industry self-regulating agency, the securities arbitration process provides a forum through which aggrieved consumers can have their cases heard by a neutral arbitrator, who will decide if their claim prevails.

Before you even file a claim, evaluate whether you should file one.

Ewusiak says legitimate securities claims usually fall into one of these categories -- unsuitable investments, misrepresented investments, excessive trading, negligence and flat-out fraud. Most claims involve investments such as mutual funds, stocks and annuities, he says.

"The first thing people need to understand is that losing money is not enough to make a legitimate claim," says Mark Tepper, a securities attorney in Fort Lauderdale, Fla.

If you do believe your claim is legitimate, follow this step-by-step process to file for securities arbitration:

Step 1: File a claim or find an attorney

First, you file the claim yourself or find a lawyer to do it for you. You can file a claim on your own at the FINRA site or hire an attorney who will receive a percentage of any financial award from the arbitration, says Tepper. FINRA provides tips on how to find an attorney.

"I would not advocate self-help because this is a highly specialized field; it's very complex," says Tepper.

Look for an attorney who has handled these cases before, who has an established track record of successfully handling these cases and who can tell you whether you have a valid claim, Tepper says. A lawyer should also be able to estimate the potential value of your claim, he says.

Whether you file or an attorney does it, FINRA breaks down claims into two types. Claims under $25,000 are treated as small claims that are handled in writing. Claims of more than $25,000 require a hearing, Ewusiak says.

If there's a clear case of negligence and the claim is small, a consumer might consider representing himself or herself in arbitration. "This will save on the costs associated with hiring a lawyer," he says. But remember, the brokerage will always be represented by a securities attorney.

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While most attorneys will take 33 percent to 40 percent of any award you receive, you still have to come up with some money upfront. Typically, it runs $3,000 to $4,000 for the filing fee and a hearing deposit, Ewusiak adds. If you need to hire an expert witness to testify on your behalf, it will cost another $2,000, he says.

"I recommend that consumers seek the advice of a lawyer, regardless of the amount at issue, if there is fraud involved or if the consumer is elderly," Ewusiak says. In those instances, certain statutes exist that permit the consumer to recover attorneys fees from the brokerage firm if the consumer prevails.

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