Securities Fraud Florida - Attorneys at Vernon Healy law firm fight for investors rights

Protect Yourself from Securities Fraud: Finding a Competent and Ethical Investment Professional

Investors have become painfully aware over the past several years that incompetence and fraud are not anomalies among investment firms on Wall Street and elsewhere. Regulators have proven that they are not able to protect investors from this ongoing wrongdoing. As times become difficult for everyone, investment firms and their advisors are getting creative about how they market themselves to new customers. Some offer free seminars complete with lunch or dinner. Some even prospect for customers at church. 

Without the information you need, you could unwittingly trust your investments to a broker with a history of customer complaints. Here are some general tips to avoid this common pitfall as well as other tips to help you protect yourself from incompetent and unscrupulous stockbrokers, investment advisors, financial planners, and other investment professionals.
  
I.    Investigate Your Stockbroker
In 1981, the National Association of Securities Dealers, or NASD, developed a system called the Central Registration Depository, or CRD. The CRD system contains a history of almost every registered stockbroker as well as many other investment professionals working in the United States. The CRD generally includes each broker’s employment and licensing history as well as some records of customer or regulatory complaints against the broker.

You can and should obtain a CRD report on vernonhealy.com broker or any broker you are considering hiring. The report is free and available to the public through most states as well as FINRA (formerly known as NASD). For additional information on how to obtain a CRD on a particular broker, contact FINRA or your state securities regulator or contact us through our website  or toll free number at 1-877-649-5394. We will assist you in obtaining this information at no charge. For an upstanding investment professional, the CRD report will reflect that he or she is qualified and free of past problems with customers, employers and regulators. If this is not the case, you should reconsider with whom you are entrusting your money.

II.    Know What your Investment Professional Should Do For You

In addition to investigating the individual investment professional, you should also investigate the brokerage firm where your accounts will be held. Given the financial turmoil of the past several years, you should work with a firm hat generates more than $100 million a year in revenue or carries $20 million or more in errors and omissions insurance. Although you need not and arguably should not work with a giant national or international firm focused more on marketing than the best interests of the investor, you do need to work with a firm that has more than just SIPC insurance, minimal errors and omissions insurance, and a few million in revenues. You should ask about firm revenues and firm errors and omissions insurance and obtain supporting paperwork before doing business with a smaller firm.

II.    Know What your Investment Professional Should Do For You

After you select the investment firm and professional, they should commit to do the following:

1.    Help you define your needs and comfort level in terms of risk, including liquidity risk, as well as ensure that you understand the corresponding levels of anticipated return;

2.    Provide you with impartial advice and objectively educate you about any investment you are considering or that is being recommended to you and help you avoid investments which are inferior, inherently defective, not in your best interests or unsuitable for you;

3.    Help you establish, implement and maintain a long-term and specific investment plan that includes an appropriate asset allocation, diversification, liquidity and principal protection policy;

4.    Monitor your portfolio and economic and other events that may affect your portfolio as well as your personal situation and advise you promptly about any adjustments that need to be made, especially adjustments to protect your principal; and

5.    Fully and accurately disclose all compensation or other financial benefit flowing to the investment professional as a result of your investment in the product or strategy being recommended or proposed. Most importantly, your investment professional should provide you with these services on a continuing basis.

III.    Recognize the Danger Signs

Once you have selected an investment professional and firm and established the ground rules for the relationship, you need to stay vigilant for any “red flags,” including the following:

1.    “Mistakes” or “miscommunications” by your ivestment professional or the firm. Catching these on minor matters may help you to move your account before you discover that these mistakes or miscommunications are due to incompetence or fraud that causes material damage to you.

2.    Lack of adequate and genuine communication by your investment professional once he or she has fully invested your funds — after the initial “sale” is completed. By moving your account as a result of communication problems, whether they are in frequency or quality, you may avoid a situation where your investment professional and his or her firm are unwilling or incompetent to adequately explain financial matters relevant to your investments or unavailable to you during a personal or market crisis.

3.    Lack of full and unsolicited transparency of fees. Your investment professional and his or her firm should voluntarily provide you with the details of all fees that will result from the maintenance of and activity in your account(s). This is not only relevant for determining net returns but also very important for you to determine whether the investment professional is
actually acting in your best interest as opposed to being financially motivated to sell the particular product or service being recommended to you. Although some of these fees may not be directly paid by you, they may nevertheless constitute a significant conflict of interest that is improperly
motivating the recommendation.

4.    High fees. Given the low returns in today’s investing environment, high fees can materially affect your returns. Make sure that you are consciously choosing, receiving and benefitting from the services being provided in exchange for the fees being charged. High fees may be justified, but oftentimes investors are paying unnecessarily high fees for services they are not using or that are not competently being provided.

Using the tips in this article will help you to move away from incompetent and unethical investment professionals and convince you to either avoid investment professionals altogether or find a competent and ethical one to invest your money.

Tips for Negotiating With a Finra Member Brokerage Firm for Victims of Securities Fraud

By Christopher T. Vernon

This article is meant to discourage an investor from attempting to negotiate or mediate a dispute with a FINRA investment firm without help from an experienced FINRA arbitration attorney. It also aims to help an investor if he or she decides to go it alone. As an attorney with more than 20 years experience negotiating with brokerage firms, I have learned that securities arbitration takes a great deal more experience, preparation, strategy and skill than most investors might realize.

Over recent decades, multiple national brokerage firms have sold one or more products on a massive scale by misleading investors and, in some cases, their own financial advisors about the true risks of these products. Now, thousands of investors – some with the help of their local financial advisors – are lodging virtually identical complaints that they were misled about the nature of and risks involved in these products.  

The firms guilty of selling these products won’t acknowledge their clear and widespread wrongdoing, but they do recognize the significant costs of defending these claims. These costs include costs to the firm’s already tarnished reputation, costs of paying high-priced lawyers to convince FINRA arbitrators that the investor and market vagaries are to blame rather than the investment firm and the costs of facing regulators when the firm has done little or nothing to resolve widespread investor complaints. 

And, although FINRA members commonly get away with more wrongdoing in FINRA arbitrations than they would get away with in an independent arbitration proceeding or in a court proceeding, the firms also recognize the significant costs of paying claims if the firms are repeatedly held liable by the FINRA arbitrators following a final arbitration hearing.
     
To minimize these costs, some of the biggest brokerage firms develop systematic damage control strategies to cheaply and quietly resolve disputes with investors that involve specific products. Some firms have created in-house teams that, on the surface, appear to conduct internal and objective investigations on behalf of complaining investors. In reality, these investigations are designed to gather evidence to support the brokerage firm when it offers a pittance to resolve a claim or asserts that the investor should get no compensation at all — even though the parent firm committed malfeasance in connection with the product at issue. Alternatively, some firms agree to conduct a formal mediation with an investor before he or she hires an attorney and before he or she files a formal FINRA arbitration claim.  In these situations, the brokerage firm often arrives at the mediation with highly paid, outside counsel armed with a high-tech, well-researched presentation to convince the investor that the brokerage firm did nothing wrong. These sham attempts at compromise usually aim to convince the investor that this was a miscommunication at the branch level of the firm and not a corporate driven effort to deceptively sell a profitable product on a national or even international scale.

If you purchased a product that was falsely represented to both you and many other investors, you should talk to a competent FINRA arbitration lawyer before approaching the brokerage firm that wronged you. This may sound self-serving, but we believe it is in the investor’s best interests. Keep in mind that the brokerage firm designed these early resolution processes to benefit it, not you. 

The following points should discourage you from negotiating or mediating with a brokerage firm without an experienced attorney, but if you decide to go it alone, they will help you avoid some basic mistakes:

1.    If you speak directly to a brokerage firm in connection with a formal or informal negotiation process, you can pretty much bet that everything you say will later be used to help the brokerage defeat your claim. Under the guise of wanting to fully understand your claim, brokerage firms will ask for a tremendous amount of information about you and your claim in order to get a "free look" at your case. The firm then uses the information to aid its own defense as well as convince you of the weaknesses of your claim. This often allows the firm to effectively get around pleading and discovery limitations in arbitration that can prevent brokerage firms from effectively interviewing or deposing you in advance of a FINRA arbitration hearing.  

2.    Each case is different, making it difficult to give concrete advice, but we believe it is helpful to thoroughly and realistically analyze what the likely result might be in FINRA arbitration and then calibrate any direct negotiations based on that analysis. This helps you negotiate in a pro-active rather than reactive manner. Many of our clients are experienced negotiators in their own fields, but learn that negotiating with a brokerage firm can be very different.In some cases, early negotiation or mediation of product cases may be the best approach. Firms recognize they have some exposure and that early negotiation or mediation gives both sides a chance to resolve the matter before the sides become too entrenched in their positions, expenses on experts, hardening of attitudes due to passage of time, etc. It also allows claimants an opportunity to resolve the matter quickly and move on with their lives. Unfortunately, without experienced counsel, you may find that early mediation or negotiating is an opportunity that the brokerage firm will use to gather evidence as well as wear you down and convince you to accept less than you should to resolve your claim.

At our firm, we analyze each client’s case when determining whether it is appropriate to mediate or negotiate prior to filing a formal FINRA arbitration claim. In addition to the time spent on negotiation or mediation, we also invest time in:  Considering the ancillary benefits and detriments to early negotiation or mediation; selecting a mediator who will be a good fit for the client and the case; deciding what evidence we want to present and what strategies we want to employ at the mediation or during negotiations. These efforts help maximize the settlement for our client or best position him or her to settle later or be successful at the final FINRA arbitration. Unfortunately, these are case specific details that are difficult to convey through a general informational article such as this one.

We hope this article has convinced you not to try to negotiate or mediate a dispute with a FINRA member brokerage firm until you have retained an attorney or at least spoken with one who is well versed in FINRA arbitration. However, if you decide to proceed with negotiations or mediation without counsel, we hope this article will improve your chances for a successful negotiation of your claim.

Considering the ancillary benefits and detriments to early negotiation or mediation; selecting a mediator who will be a good fit for the client and the case; deciding what evidence we want to present nd what strategies we want to employ at the mediation or during negotiations. These efforts help maximize the settlement for our client or best position him or her to settle later or be successful at the final FINRA arbitration.

Unfortunately, these are case specific details that are difficult to convey through a general informational article such as this one. We hope this article has convinced you not to try to negotiate or mediate a dispute with a FINRA member brokerage firm until you have retained an attorney or at least spoken with one who is well versed in FINRA arbitration. However, if you decide to proceed with negotiations or mediation without counsel, we hope this article will improve your chances for a successful negotiation of your claim.