CAVEAT INVESTOR! RECOVER YOUR
INVESTMENT LOSSES!
By Martin J. Gofberg, J.D.
mjgmediator@yahoo.com
© 2011 Martin J. Gofberg All Rights Reserved
Securities arbitration is an alternative dispute resolution process whereby public investors may seek recovery of their investments losses due to misrepresentation, fraud, negligence, unsuitable investments, churning (excessive commissions), unauthorized trading, failure to disclose material information, excessive (unfair) markups of securities, limited partnership losses, and other causes of action related to “creatively” engineered investment products such as derivatives/swaps and the selling of same to the public without properly advising the investor as to how, in fact the product really works/functions and if same is in fact suitable or has a material benefit for the investor that the investor seeks in purchasing said investment product.
Since 1987, the United States Supreme Court, in Shearson /American Express vs. McMahon, held that pre-dispute agreements to arbitrate contained in securities account documents signed by the customer in the opening up of their investment account with an NASD (National Association of Securities Dealers, Inc.) now known as FINRA member firm are valid, binding and enforceable, thus investors must submit their claims to arbitration.
As a public customer involved in purchasing securities, you must do some basic research/homework to ensure that the investment product sold to you is/are suitable for your particular investment needs and objectives, and that you clearly understand what you are purchasing. Brokerage firms and brokers will treat you wonderfully in courting your business; however, when a problem arises you will be shocked to learn that you now will often be treated as their worst enemy, and told that you are the sole cause of your own investment problem.
Public customers, in purchasing any investment product, must know who is selling them the investment product in order to have a jurisdictionally sound party (FINRA member firm or broker and that the financial planner is registered with FINRA) to go after if the investor later discovers what was sold to them is unsuitable and not what they thought it was at the time of purchase, or if something was wrong in the actual investment sold to you.
BUYER BEWARE (CAVEAT EMPTOR) of investing your hard-earned monies in foreign stocks, oil wells or oil drilling and mining ventures, for if no jurisdictionally sound party is available, you will have almost no source of recovery or recourse for your investment loss within the securities arbitration process. This includes investing in Hedge Funds that are not based in the U.S.A. for they are foreign corporations or offshore corporations.
Please also note, that not all Financial Planners are registered with FINRA as Registered Representatives which means they are not required to submit to the securities arbitration process, which means you need to litigate in the courts.
The Financial Planner may be registered with the U.S. Securities and Exchange Commission as a Registered Investment Advisor (RIA) which has oversight over RIA’s; and it is actually possible that the RIA may never have had an audit by the SEC as they do not have the resources to conduct audits of ALL RIA's nationwide.
In a Securities Arbitration hearing I was involved in, a former Supervisor of the SEC RIA section had testified that in the past it was not unusual for an RIA to have been audited once every five years (if ever) due to the lack of SEC staff to oversee the large number of RIA’s throughout the U.S.A.
Also, it is not usual for previously Registered Representatives with the NASD/FINRA who had serious disciplinary problems (including forgery of customers signatures) to become RIA’s as the SEC process does not really have very many ways of catching severe disciplinary histories, and as such, by becoming a Registered Investment Adviser one could avoid detection by the regulators and the general public and still be in the securities industry, and this is in fact more dangerous as it is the custom for RIA’s to have full discretionary authority over an investor’s entire investment portfolio, so it is critically important to know as much as possible about the individual/firm handling your investment account.
Question: I contacted my broker at a major brokerage firm to buy a specific mutual fund. My broker told me to buy his own firm’s mutual fund instead. I did some reading and learned the mutual fund I wanted to purchase was far better in terms of quality. Why would the broker recommend a fund that was lower in quality and value?
Answer: Brokers are commission driven salespeople. The broker is usually forced to sell the firm’s own proprietary products, which have a higher commission both for the firm and the individual broker. In addition, the firm makes management and distribution fees, annual fees and sales charges. Brokerage firms tend to act in their own best interest in the retail sale of securities. The Securities Industry Rules of Fair Practice, Article III, Section 1, states: “A member in the conduct of his business shall observe high standards of commercial honor and just equitable principles of trade.” (Emphasis added)
The best rule of thumb: Do not agree to any securities transaction that you do not fully understand or comprehend. You need to fully investigate the actual investment being offered to you to ensure that it is what the broker says it is relative to the way the investment works and any and all fees and costs involved.
It is imperative as an individual investor for you to take an active/aggressive role in protecting your own interests and assets, to recover your investment losses when they have occurred in a timely fashion in order to mitigate (or minimize) your damages. When a broker or brokerage firm breaches a fiduciary obligation and trust with you, the public customer, it affects the integrity of the entire securities marketplace.
It is important that you pay careful attention to when you first learn that a particular investment turns out to be a problem. Timing is very important- you must act quickly in order to recover your investment loss. It is important to closely monitor your investments and to review your monthly statements from the brokerage firm to see that only transactions you authorized are listed. If you see any problem with the monthly statement, immediately contact the firm’s branch office manager, both verbally and in writing to ask about the problem.
It is your account. It is your money that is at stake. Only you can act in your own best interest. When you do have a legitimate problem, contact a qualified professional who deals in retail securities disputes. It is important that you seek someone who knows how the securities arbitration process works, to negotiate and arbitrate on your behalf and to resolve the dispute successfully, and in your best interest.
