Investment and securities fraud may involve a variety of behaviors, including excessive trading or churning, misrepresentations, false information, or pump-and-dump stock schemes. A skilled securities fraud lawyer can help you pursue a FINRA arbitration claim or file a whistleblower complaint to the SEC to recover fraudulent investment losses.
Fiduciary Duty
Many people invest their money to build wealth for the future, and they rely on financial advisers, brokers, and other finance professionals to make appropriate investments that align with their goals and risk tolerance. When financial fraud occurs, however, investment losses incurred by unsuspecting consumers can be significant and negatively impact individuals’ financial health.
Securities attorneys have an in-depth understanding of federal and state investment laws and industry rules. A skilled securities fraud attorney will use their experience to cast a critical eye over your accounts and help you identify suspicious activities that could indicate fraudulent misrepresentations or omissions. From examining account statements over coffee to reviewing trade activity for signs of churning, a qualified securities fraud lawyer can help you spot and act on any potential red flags that may indicate fraud.
When a person engages in securities fraud, they may be subject to criminal and civil penalties, including restitution, fines, disgorgement of ill-gotten gains, and other consequences. For example, REIT (real estate investment trust) fraud is a common form of securities fraud involving misleading information to manipulate stock prices and deceive investors. If you are a victim of REIT fraud, you may be entitled to recover your losses by filing a class action lawsuit on behalf of other affected investors.
FINRA Arbitration
When a dispute between a broker and a customer is not resolved through direct negotiation, the dispute is filed with FINRA for arbitration. In a typical FINRA arbitration, the broker-dealer and registered representative will retain legal counsel to represent their interests. Customers, however, are not required to retain counsel and may choose to represent themselves in a FINRA arbitration. Despite this, it is always advisable for a customer to seek the assistance of a securities fraud attorney in preparing their arbitration case.
The first step in the FINRA arbitration process is to file a Statement of Claim with FINRA. The Statement of Claim contains all the facts, legal theories, and damages sought by the claimant. A panel of arbitrators will be selected after a Statement of Claim is filed. The parties will receive lists of potential arbitrators and background information on each. The parties will then rank their preferred arbitrators and strike any they would not like to serve on the panel. FINRA will then assign the remaining arbitrators to the panel.
The next phase of a FINRA arbitration is discovery. This is less extensive than the discovery process in a civil case in court and focuses on an exchange of documents. FINRA has specific discovery rules that the claimant and respondent must follow. Once discovery is complete, a hearing will be scheduled.
FINRA Enforcement
Regarding FINRA investigations, the self-regulatory organization takes several approaches to resolving cases. One way is to issue a disciplinary action, such as an order to refund money or a permanent bar from the securities industry. However, many of these cases are resolved through a settlement. FINRA has settled more than 1,400 actions in the past three years without adjudication.
FINRA also relies on a series of core principles to guide its Enforcement process. These are designed to promote consistency in the outcomes of cases and ensure that a case is brought only when evidence of wrongdoing exists.
In addition to examining customer complaints, FINRA investigators conduct interviews with individuals involved in the matter under investigation. This includes brokers, their assistants, and those who may have obtained information from the subject of an investigation.
It is important for a broker and their attorney to maintain open lines of communication with FINRA investigators. This can help ensure that the investigation does not go off in a direction that increases the costs of defending against it or confuses the issues that need to be resolved.
It is equally important for a broker to make sure that all relevant information and documents are produced in response to a Rule 8210 request. Failure to do so could be a red flag to FINRA investigators and lead to the imposition of a fine.
SEC Enforcement
Many financial professionals adhere to strict legal standards when acting in their client’s best interests. Still, there is always the chance that negligence or intentional misconduct could result in substantial investment losses. Unfortunately, many companies and individuals have to deal with allegations of securities fraud regularly. These allegations can take several forms, from allegedly withholding or misrepresenting information to manipulating the market price of stocks.
Investors and other interested parties can file complaints against companies or individuals with the SEC using its online EDGAR system. The SEC’s Enforcement Division reviews all tips, complaints, and referrals to determine whether they warrant a formal investigation. If a tip is particularly significant or credible, the investigators may compel witnesses to testify and produce books and records with a subpoena.
In fiscal year 2022, the SEC Enforcement Division brought charges against several individuals and companies for alleged securities law violations. In one instance, a former chief executive officer was required to return bonuses and compensation after the company restated its financial results in a fraudulent scheme. The SEC also filed actions against alleged market manipulators who targeted affinity groups such as Tongan Americans, elderly church members, Spanish-speaking communities, and police and first responders.