Investors have several protections from unethical and illegal behavior by brokerages. Both state and federal law govern how investors can bring claims against brokerages and resolve disputes. Common claims by investors against brokerages include negligence, breach of fiduciary duty, failure to supervise, misrepresentation, and breach of contract.
The Maryland Securities Division protects investors in the state from fraud and misrepresentation. The Maryland Securities Act regulates the offer and sale of secured transactions. The Financial Industry Regulatory Authority, the independent securities regulator, issues rules governing over 4,000 securities firms across the U.S. and arbitrates disputes between investors and FINRA members. The Securities and Exchange Commission also creates and enforces rules governing the sale of securities.
While numerous laws govern secured transactions, fraud, misrepresentation and other legally actionable activity occurs all too frequently. Often, the biggest deterrent to securities fraud and misrepresentation is the threat of legal action by investors.
Investors have several options when in dispute with a brokerage firm. An investor may wish to first resolve the issue informally with the brokerage. In many cases that is not enough, however, and an investor must file a claim for arbitration or report a brokerage to a regulating agency, or both.
It is a good idea to first obtain the help of experienced legal representation before initiating any action against a brokerage. A securities arbitration law firm can discuss the best legal options available to an investor, which government agencies may become involved and potential recovery options. In a significant number of securities arbitration cases, for example, investors receive money damages or other legal relief.
Securities arbitration and mediation
Arbitration is the resolution of a legal dispute through a third party. The arbitrator issues a decision on the dispute after each side present arguments, much like in court. However, arbitration is generally less expensive than litigation and is not public.
There are important aspects of arbitration to keep in mind. In only rare cases will a decision by an arbitrator be questioned by a court. Arbitration is final and binding to the parties. In addition, rarely can an investor initiate a claim in court once the arbitration is complete.
Members of FINRA, which include all stockbrokers, are contractual obligated to arbitrate disputes with customers. This is because of FINRA rule 12200 and Rule 13200, which brokerages agree to upon applying for membership in FINRA. In addition, most brokerages use pre-dispute arbitration agreements with their customers, meaning that securities disputes are almost always resolved through arbitration.
Preparing to win in arbitration
A brokerage will have a legal team in place to argue its side throughout the arbitration process, including in settlement negotiations. That is why investors seeking to resolve a dispute with a brokerage should contact an experienced securities arbitration law firm to discuss options, prepare a case and negotiate in settlement talks.