Investment Dispute: How to Recover Losses from Financial Misconduct

An investment dispute arises when a broker or advisor violates legal obligations to the client. Unsuitable investment recommendations are among the most common bases for a securities claim. Material misrepresentation occurs when a broker makes a false statement of material fact in connection with the purchase or sale of a security. Material omission occurs when a broker fails to disclose a fact that the investor would have considered important in making the investment decision.

Investment fraud counsel evaluates the specific conduct that caused the investor's losses, identifies the applicable securities claims under federal and state law, and advises on the legal theories available to the investor based on the nature of the broker's or advisor's misconduct.

Suitability obligations require a broker-dealer to have a reasonable basis for recommending any security. Investment advisors owe a fiduciary investment duty. Churning is measured by the annualized turnover rate and the cost-to-equity ratio. A turnover rate above two or a cost-to-equity ratio above twenty percent typically supports a churning claim. Unauthorized trading occurs when a broker executes trades in a client's account without the client's prior authorization.

Investor rights counsel evaluates suitability, unauthorized trading, and churning claims against broker-dealers, advises on FINRA Rule 2111 and Regulation Best Interest obligations applicable to broker-dealer recommendations, and advises on the quantitative and qualitative evidence required to establish a churning claim before a FINRA arbitration panel.

Rule 10b-5 under the Securities Exchange Act prohibits material misrepresentations in connection with the sale of a security. A Rule 10b-5 claim requires proof of a material misstatement or omission, scienter, reliance, and damages. Section 11 of the Securities Act provides a remedy for investors who purchased securities registered under a materially false registration statement. Section 12 provides a remedy for investors who purchased securities sold by means of a materially false prospectus. The Private Securities Litigation Reform Act imposes heightened pleading standards on securities fraud class actions. Securities claims may also be brought under state Blue Sky laws, which provide additional remedies.

Investment loss recovery counsel evaluates securities fraud claims under Rule 10b-5, Section 11, and Section 12 of the federal securities laws, advises on the heightened pleading requirements of the Private Securities Litigation Reform Act applicable to class action securities fraud claims, and advises on state Blue Sky law claims that may provide additional remedies.

Ponzi schemes generate investment losses on a massive scale. A Ponzi scheme operator uses new investor funds to pay purported returns to earlier investors. Ponzi scheme victims may pursue claims against the operator, feeder funds, and financial institutions that facilitated the fraud. Elder financial abuse arises when an investment professional exploits a senior investor's diminished capacity or trust relationship to recommend unsuitable investments or divert investor funds. The Securities Investor Protection Act provides limited protection for investors when a broker-dealer becomes insolvent.

Elder financial abuse counsel pursues investment fraud claims on behalf of senior investors who have been victimized by Ponzi schemes, unsuitable investment recommendations, and unauthorized transactions, advises on the elder financial abuse statutes available in many states that provide enhanced remedies for senior investor fraud victims, and advises on the Securities Investor Protection Act protections available when a broker-dealer becomes insolvent.

FINRA enforces compliance with its rules through examinations, investigations, and disciplinary proceedings. SEC enforcement actions can result in disgorgement of ill-gotten gains, civil money penalties, and industry bars. Cryptocurrency and digital asset investment disputes have emerged as a rapidly growing area of securities enforcement. The SEC has taken the position that many cryptocurrency tokens are securities subject to federal registration requirements.

Securities enforcement counsel advises investors on the SEC enforcement process and the rights of investors in SEC investigations, evaluates FINRA disciplinary proceedings against brokers as evidence of misconduct in investor arbitration claims, and advises on cryptocurrency investment disputes and the application of federal securities laws to digital asset transactions.

FINRA arbitration is the mandatory dispute resolution forum for customer claims against FINRA member broker-dealers. The FINRA arbitration process is governed by the Code of Arbitration Procedure for Customer Disputes. A statement of claim initiates the arbitration and must specify the legal theories and quantify the damages sought. Claims over $100,000 are heard by a three-arbitrator panel. FINRA arbitration awards are final and binding and are subject to limited judicial review under the Federal Arbitration Act.

Arbitration counsel manages the FINRA arbitration process from statement of claim through hearing and award, develops the discovery strategy and document requests applicable to the investor's claims, and advises on the post-award enforcement of FINRA arbitration awards and the grounds for seeking vacatur of an award under the Federal Arbitration Act.

Securities class actions are available when many investors suffered losses from the same material misrepresentation or omission. The lead plaintiff in a securities class action is typically the investor with the largest financial interest. Class certification requires proof that common questions of law and fact predominate over individual questions. Individual FINRA arbitration claims are frequently more efficient for investors with substantial individual losses. Blockchain analysis is an important tool in recovering losses from cryptocurrency investment fraud.

Cryptocurrency fraud counsel evaluates the choice between individual FINRA arbitration and securities class action participation for investors with investment fraud claims, advises on cryptocurrency investment fraud recovery and the asset tracing tools available in digital asset disputes, and advises on the litigation strategy for pursuing maximum recovery against broker-dealers, investment advisors, and other defendants in investment dispute cases.

The measure of damages in an investment dispute depends on the legal theory. Rule 10b-5 damages are the difference between the purchase price and the security's true value. In a suitability or churning case, damages include losses caused by the unsuitable investments or excessive trading, plus commissions generated by the misconduct. Rescission is available in Section 12 cases and allows the investor to return the security and recover the purchase price. Attorney fees are recoverable under FINRA arbitration rules and under certain state securities statutes.

Securities litigations counsel calculates the full measure of damages available in securities claims under federal and state law, advises on rescission as an alternative remedy in Section 12 securities cases, and advises on the collection strategy for enforcing FINRA arbitration awards and court judgments against broker-dealers and investment advisors.