Securities FAQ

Call Bob Rex or Nan Thompson at 561-391-1900. (If the call is long distance, let us know and we will call you back). If you prefer, you can fill in the email form in the Contact Us section and someone from our office will call you to talk about your situation and see whether we can help.

Stockbroker fraud is a term that can be used to broadly define the abuse of a customer’s investment portfolio by a stockbroker and/or broker-dealer. Examples are overtrading of the account (churning) and the sale of unsuitable investments (limited partnerships & annuities).

For example, the type of trading and risk which is suitable for an executive in his 40’s who earns a big six figure salary is entirely different than what is suitable for most retirees. The executive has the ability to replace lost capital while the retiree does not. So generally speaking the investments which a broker suggests for a retiree should be conservative and with more concern for preserving capital.

As a guideline, if you are retired and have lost more than 15% of your account in a single year or have suffered large losses in a single security, you should have someone review your account.

Many of our clients, before engaging our services, have met with brokerage firm representatives in an attempt to resolve their problems. We have seen many instances where clients, prior to engaging our services, have first corresponded with their brokerage firm’s legal department. Our impression from these clients is that they feel that those efforts were wasted as was the time expended.

Each case is considered on its own merits. Factors which are significant are:

• Age
• Amount and type of prior trading experience
• Sophistication of the investor or lack thereof
• Heath of the investor
• Amount of the loss as it relates to the investor’s liquid net worth.

We evaluate each case to determine the suitability profile of the potential client, the amount of money lost and the solvency of the broker-dealer in question. There is no charge to call and speak with one of us about your case to determine if we feel further analysis is warranted.

Attorney Fees: While there are always exceptions, we handle most of our cases on a contingent fee basis (meaning that our fee is paid as a percentage of the recovery, not on an hourly basis), so we are interested in pursuing only cases in which we believe a recovery is likely.

Costs: In some instances we agree to advance costs, however in most situations we require the client to pay for the cost of an account analysis and the filing fee with FINRA, formerly the National Association of Securities Dealers (NASD). We will give you an estimate of the costs you may expect prior to incurring them.

Yes. Filing your claim sooner increases your chances of a recovery because, information and witnesses are more available and recollection of the events is often better. If a case is not timely filed, the broker gains certain legal defenses that could bar your claim. These defenses are commonly referred to as Statute of Limitations defenses and while the FINRA (formerly NASD) jurisdiction can extend for as long as six years, there are some causes of action as short as one year.

Contacting a lawyer about your claim as early as possible is important.

Virtually every brokerage firm in the country includes what is referred to as an “Arbitration Provision” on the back of the forms you sign on the day you open your account. Generally this provision provides that if you have a dispute over your account, you waive your right to go to court and agree to arbitrate before either the FINRA (formerly NASD) or one of the exchanges, like the NYSE.

Arbitration is generally faster and less costly than court litigation. Most arbitration panels are comprised of 3 members. Two are deemed public and one industry (generally a current or retired broker). At the final hearing, after your case is presented and after the defense has presented their case, the arbitration panel will make a determination if you are entitled to any recovery, and if so, how much.

In most situations, there will be a mediation prior to the arbitration. Mediation is a voluntary process utilizing the services of an independent third party who attempts to facilitate a settlement between the parties. While it can take place at any time mutually agreeable to the parties, it generally is scheduled 60-90 days prior to the Arbitration hearing.

Mediation is a settlement conference held prior to trial. Both sides, along with their lawyers, appear before a mediator, who is typically a retired judge or lawyer, or an expert in the securities field. The mediator’s role is to hear both sides of the argument and to attempt to resolve the conflict between the two parties. Mediation is voluntary and all information divulged during the mediation process is confidential.

While this can vary from case to case, in the most general sense, cases are resolved 12-18 months from the time they are filed.

Over the last several years the popularity of annuities has grown enormously. The reason for this is the broker receives one of the highest selling commissions of all financial products when selling a variable annuity.

Before investing in an annuity, a broker should determine whether or not the investment is suitable given the customer’s age, investments needs, station in life and risk tolerance. For instance:

• Did you need access to cash?
• Did you have income needs?
• Were you risk adverse?
• Did your heirs need a death benefit?
• Did you already have adequate life insurance coverage prior to purchasing the annuity?

If you have answered yes to any of these questions, a variable annuity may not have been a suitable investment for you.

Before purchasing B shares in a mutual fund a careful analysis should be undertaken by your broker to determine whether Class B shares are in your best interest. Part of this analysis includes the broker asking you the following questions:

• How long do you plan to hold the fund?
• The size of your investment?
• The expenses that you will pay for each different class of shares?
• Whether you qualify for commission discounts?

While Class B shares do not impose front-end sales charges they do charge higher expenses in the form of 12b-1 fees and other charges to investors that are assessed over the lifetime of the investment compared to Class A shares. Additionally, Class B shares impose withdrawal fee which the investor pays if the shares are sold within a certain number of years (this fee is between 4-7% depending on the fund family.

The tech explosion of the late nineties created a new class of “paper millionaires.” Employee shareholders of tech companies were often directed by their employers to a full service brokerage firm for the purpose of exercising their options on a “cash” or “cash less” basis. Unfortunately, many employees suffered damages as a result of poor supervision and/or inexperience of the brokers handling these accounts.

Diversification of a single stock position is the simplest way to reduce risk, but it is not the only option. Depending on the customer’s financial objectives other alternatives include a “zero cost collar,” put options, and a prepaid forward sale. A brokerage firm owes its customer a fiduciary duty which includes the disclosure of information about the different ways a position can be hedged to protect the value of a life’s work delivered to a full service brokerage firm for professional advice.

FINRA (formerly NASD) Rules governing the jurisdiction of brokerage firms requires international clients with brokerage accounts with a FINRA-registered firm to submit to jurisdiction in the United States. Dickenson, Murphy, Rex and Sloan has a lot of experience with international clients, particularly from Latin America.

According to the Securities Arbitration Commentator, a periodical publication which has studied the statistics of securities arbitration cases, 80% of all customer cases settle in favor of the investor prior to the rendering of an arbitration award. Over half of the remaining 20% that do not settle prior to arbitration result in an award to the customer. Said another way, just less than half of the cases which go to arbitration result in an award in favor of the brokerage firm.