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.
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.
Step 2: Gather evidence
A claim is only as good as the evidence you have to support it. Keith Loveland, an attorney with Loveland Consulting in Minneapolis, says you’ll need to gather all your brokerage statements, correspondence between you and your broker on the disputed investments, and other relevant paperwork, such as notes you took during or after phone conversations or meetings with your broker.
On the other side, your broker will gather evidence as well, including documents you signed to open an account or to buy the securities in dispute, says Loveland. Your broker’s attorney will look at your investment history, including what types of investments you made with other brokers, to try to undermine your claim, says Ewusiak.
“They are going to be aggressive and both sides will pull out all the stops to make their positions known,” he says.
Step 3: Work through the process
It can take eight months to a year to get a hearing for claims of more than $25,000, says Tepper. Small claims are decided within a few months.
Arbitration is different from a lawsuit, Tepper adds. There is no judge. Instead, each party is given a list of arbitrators from which to choose. A single public arbitrator decides cases of $25,000 or less, while a panel of three — one from industry and two from the public — decides cases larger than $25,000, Ewusiak says. The public arbitrators must not have worked in the securities industry for at least five years.
The hearing process can take one day to more than a week, depending on the complexity of the claim, says Loveland. Generally, you and your broker will testify as well as any expert witnesses.
Step 4: Receive the decision
Within 30 days of the hearing, the arbitrators will issue a decision, according to Tepper. If you win, you should receive any funds due to you within 30 days. Either side has 30 days to appeal, but the rules regarding arbitration make it difficult for an appeal to succeed. Because appeal grounds are so limited, most parties don’t.