Most investors are unsure whether they should seek legal advice if their broker or advisor has lost them money. In some situations, the law allows investors to recover their investment losses, and in some situations it doesn't. These are the most frequent questions investors ask:

Quick Review of Questions with Links to Answers:

WHAT KINDS OF CASES AGAINST INVESTMENT PROFESSIONALS ARE MOST COMMON?

There are primarily four common cases against Investment Professionals.  These are as follows:

A. Negligent Advice and Recommendations. Advisors must give advice that is suitable and that is well researched. For example, before recommending any security, an advisor must have conducted reasonable "due diligence" to ascertain that it is a legitimate security and that it is suitable for the investor. A stockbroker's conduct that falls below a standard established to protect investors against unreasonable risk of harm is negligent. This claim for relief for stockbroker or advisor negligence is based upon duties owed by a broker to his or her clients and the breach of that duty. This includes the duty to exercise due diligence and care in connection with a client's account.

For example, an advisor who represents a high-risk derivative product as a safe, secure and liquid investment could be found to be negligent and responsible for the investor's losses.

Similarly, many advisors who sold auction rate securities as being safe and liquid have been found to be negligent by FINRA arbitration panels.

Another example of negligence is an advisor's decision to sell a speculative investment to someone who cannot afford to lose principal--or decides to "trade" an account rather than simply recommend bonds or other income-generating investments and hold them.

Negligence can result in severe financial losses for an investor. For a free initial consultation, regarding your possible securities claim for negligence, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

B. Unauthorized Trading. Generally, an advisor must have a client's prior authorization before making any trade. The only exception is if the client has signed a written "discretionary trading" agreement, where the advisor is allowed to trade without discussing the trading first. Even when a written agreement is signed, all purchases must be suitable for the client and must not benefit the advisor at the client's expense. This is because the advisor is a fiduciary when making decisions for a client. Fiduciaries are held to a higher standard of care, and must not further their own personal interests at the client's expense. Therefore, they must act with the client's money in a prudent fashion, considering both the income needs of the client and the preservation of principal.

If a stockbroker or advisor makes trades, especially a course of expensive or unsuitable purchases, without the clients' authorization, this violates securities laws and regulations. Often unauthorized trading results in excessive trading. In these cases, stockbrokers and advisors are legally obligated to refund both losses and the fees and commissions they received from the trading.

Unauthorized trading is a violation of the securities laws and FINRA regulations. It is also considered a serious offense at brokerage firms. For a free consultation regarding your possible claim for unauthorized trading, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

C. Stockbroker or Advisor Fraud. Wall Street has been tarred and feathered by the almost-daily criminal charges for theft, misappropriation, misrepresentation and insider trading by brokers, hedge funds, and other investment advisors Although most investment professionals are honest and try to provide excellent advice to their clients, the losses caused by their dishonest colleagues has resulted in financial devastation for many people.

Investment fraud can occur in a number of ways. Some of the most common types of stockbroker misconduct are outlined here.

Stockbroker fraud entails using deception to benefit the broker's interests at the client's expense. These deceptions may include lying about financial products, intentionally withholding material information about a recommended investment, or soliciting investors by phone or on the internet to purchase bogus investments. Often promises of higher than expected returns are made, or investors are assured they will "never lose money". Some brokers provide only an incomplete or inaccurate portrayal of the risks of an investment.

Anyone can be the victim of securities fraud. Many retired people are lured by the promise of safe income. Individual investors, small businesses, corporations, pension funds, and groups of investors can be the victims of fraud. For a free initial consultation about an investment that you believe was inaccurately described to you in a material respect, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

D. Over Concentrated Portfolios. The most fundamental rule of wise investing is to diversify the investments held. No portfolio should have over 10% in any one investment. The opposite of a diversified investment portfolio is an "over concentrated" investment portfolio. This occurs when a stockbroker invests a large portion of a client's assets in a single investment or market sector. For example, if a broker primarily recommended bank stocks or preferred stock, investors can find that they are exposed to a high level of risk, and suffer large losses.

All investment advisors must pass certain examinations to become licensed. They must be licensed in each state in which they have clients. It is a basic rule that they are licensed to assist the investing public, not to generate commissions and other compensation by abusing their clients. Even if an advisor is a "true believer" in a particular stock, or market sector, the industry has stringent "supervision" requirements that require his or her superior to review every trade, and every account on a frequent basis to avoid exposing clients to unsustainable risk of loss. If you think that your advisor or investment firm overly concentrated your assets in one investment or one sector or kind of security, you may have a claim of overconcentration. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

HOW LONG DOES AN INVESTOR HAVE TO BRING A CLAIM?

The securities fraud and other laws have statutes of limitations that require investors to proceed promptly with legal action. However, "promptly" generally means that an investor should commence legal action within two to six years of realizing that they have lost money as a result of one of the kinds of securities fraud or negligence outlined above. Time restrictions for filing an arbitration claim or lawsuit vary widely depending on state law and the location of the client. An experienced securities attorney can evaluate the strength of your claim and help you learn what the statutes of limitations are in your situation. Often, if a class action has been filed that would encompass your claim, that filing will "toll" the statute of limitations so that it is no longer running. This allows an investor an even longer period of time to proceed. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

I DID NOT KNOW THAT SOME OF MY INVESTMENTS, AS IT TURNS OUT, WERE MORTGAGE-RELATED PRODUCTS (SUCH AS COLLATERAL DEBT OBLIGATIONS). I LOST MONEY WHEN THE HOUSING MARKET COLLAPSED. DO I HAVE A CLAIM?

Following the housing market crash that began in 2008, many brokerage firms admitted that the "safe, income-generating" investments they had sold had assets that were really high-risk investments tied to subprime or risky mortgages. While the collapse was the result of many abuses (poor Federal Reserve regulation of mortgage standards, highly lucrative mortgage brokerage shops with predatory lending practices, and securitizations that allowed for large profits) as a client of a brokerage firm, you are owed certain duties. This includes accurate disclosure regarding the risks of an investment and accurate description of the investment. If you have lost money in REIT's, CMO's, CDO's, bonds, or auction rate securities, you may have a legal claim. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

I HAVE LEARNED THAT SOMEONE WHO IS NOW IN A NURSING HOME (OR DECEASED) LOST MONEY IN INVESTMENTS. CAN I DO ANYTHING ABOUT IT?

Often elderly and infirm people are seen as "lambs to be slaughtered" by foxes in the securities business. Although they might not have been aware of the abuse, or are not now able to testify, their heirs can bring such claims on their behalf. Again, statutes of limitations are a factor to consider. Your best course of action is to contact a reputable, experienced securities arbitration attorney who can help determine whether a valid claim should be filed. If you believe your loved one was the victim of negligence or securities fraud, please contact me for a consultation. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

WHAT IS THE PROCESS FOR A SECURITIES ARBITRATION?

Most brokerage firms require its customers to sign an agreement when they open an account agreeing to take any disputes to an arbitration. The Financial Industry Regulatory Authority, "FINRA" (formerly the NASD), runs the arbitration tribunal, and it schedules hearings in all major cities every month. Although some customers never signed such agreements, they are also able to file a securities arbitration rather than taking their claim to court if it is against a FINRA-licensed advisor. There are no depositions in arbitration, and it is generally completed in 12-18 months. There is a separate, quicker process with one arbitrator available where the losses are less than $100,000. Larger cases are heard by a panel of three people. The process is best navigated with the assistance of an experienced securities arbitration attorney with a record of winning cases. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

WHAT IF I DID NOT KEEP NOTES ABOUT WHAT MY BROKER TOLD ME, BUT HE OUTRIGHT LIED TO ME REGARDING AN INVESTMENT? CAN I STILL BRING A CLAIM?

You may have a viable claim depending on the kinds of investments you were sold, documents available from the brokerage firm, and your financial situation when the investment was recommended to you. Brokerage firms are required to provide you with copies of all the documents you signed and all statements and confirmations for trades upon request. In order to expedite a review of your possible case, it is best if you retrieve these documents and outline the information you have. Often these documents will reveal key information to an experienced securities arbitration attorney which will support a valid case of securities fraud. The securities laws are highly technical, have been construed by the courts, and therefore it is important that you seek the advice of an experienced securities attorney to review a possible claim. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

SHOULD I FIND A NEW BROKER BEFORE CONTACTING AN ATTORNEY?

If you believe that your broker or advisor has misled or defrauded you, it is important that you promptly investigate. Even if you have a good relationship with your broker and do not want to interfere with that, often the broker was simply providing information that he or she received from the firm's research department. By law, brokerage firms are completely responsible for the acts of their brokers, even if they did not know what he or she was saying or selling. Therefore, it is not necessary to name the individual broker in a lawsuit or an arbitration in order to obtain compensation.

It is not necessary to accuse your broker personally nor to find a new broker before seeking legal review and advice. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

I HAVE LEARNED THAT A GROUP OF US WERE SOLD THE SAME INVESTMENTS BY OUR BROKER. CAN THE GROUP BRING ONE ARBITRATION RATHER THAN HAVING TO FILE SEPARATE CASES?

Yes. FINRA rules allow a group of relatives, friends, members of the same congregation or any other group with a common complaint to bring one arbitration. These cases are especially powerful given the corroborating testimony of the group members. Even if the group members were sold the same product, for example, auction rate securities, by different brokers at the same firm, FINRA has allowed a single case to proceed. This occurred in a case involving auction rate securities sold by E*TRADE which I tried in June 2010, and in which the panel ordered E*TRADE to pay back all the money to all members of the group, and to reimburse the investors for the costs and expenses of the arbitration. To view this arbitration Order, please click here.

If you know of other people who have the same problem, it may be very helpful to your case to join together in one arbitration. An experienced securities attorney can help sort through the circumstances and factors and make a strategic decision that is best for all. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

I HAVE LOST MONEY IN BOND FUNDS OR BONDS. CAN I BRING A CASE FOR SECURITIES FRAUD ABOUT BONDS?

Yes. The securities laws cover many kinds of investments: stocks, bonds, private placements, promissory notes, preferred securities, auction rate securities, collateralized debt obligations, collateralized mortgage obligations, unit investment trusts, mutual funds, ETF's and money market funds. Under these laws, financial advisors and brokers have an obligation to disclose all material facts associated with bonds. Unfortunately, many advisors failed to disclose that bonds or bond funds were exposed to subprime mortgages, or that they can lose value as interest rates decline.

Some bond issues, such as those issued by Jefferson County, Alabama (Birmingham, Alabama) for a sewer plant, which are in default, were not well researched by the brokerage firms that sold them. Again, the securities laws require that brokerage firms conduct a reasonable "due diligence" research before recommending any security. If you believe that your broker failed to disclose the risks associated with a bond, or that the bond was much too risky given your financial situation, you may have a valid claim to recover your losses.

I have recently settled several large cases in which a broker actively traded unit investment trusts, bonds, bond funds, and other income-generating securities. This created enormous commissions for him and the brokerage firm. Often, in such cases, the commissions not only chip away at the income the account is supposed to generate for the client, but sometimes the commissions exceed the income, and losses result. The law is that all commissions of such excessive trading are separately compensable, in addition to any losses suffered by the customer. Because many investors were "stung" in the stock market's decline and sought the "safety" of bonds and income-generating investments, brokers who are interested in maintaining their standard of living at their clients' expense sometimes decide to "churn" bond funds that should be bought and held.

If you believe that you have losses in bonds, CMO's, CDO's, auction rate securities, or bond funds and UITs, please contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

IS IT WRONG FOR A BROKER TO RECOMMEND THAT I USE MARGIN TO BUY STOCKS OR BONDS?

Often, brokers either use "margin" (borrowed money from the brokerage firm) or recommend a client use margin in order to increase the amount of "Purchasing Power" that an account has. This, of course, allows the broker to sell the account more investments, thereby increasing the commissions. If margin is used to purchase municipal bonds, the income from which is typically tax-free, this can jeopardize the tax-free status of all such income in the account. Also, because bonds are generally bought for income, not to generate "growth", the use of margin is especially suspect in portfolios holding bonds.

Brokers may recommend that a client use margin to buy a low quality bond. The broker may tell the client that if the bond pays a higher interest rate than the interest charged on the margin, the client is in effect, receiving "free money". However, this logic is flawed and can lead to large losses. When you purchase any security on margin, the brokerage firm is lending you the money to pay for the securities. Initially, the firm can allow you to pay cash for only half the purchase price of the securities. You then owe the brokerage firm the "debit balance", which is the amount borrowed. The amount of the margin debt does not change. However, if the bonds decline in value, then you can be required to meet a "margin call", which means that you must deposit additional cash into your account. If you fail to do so, the brokerage firm can sell your bonds. This can lead to large losses very quickly. Generally, this risk is not adequately explained to customers. There is usually no reason for most investors to buy bonds on margin.

Using margin increases the riskiness of an account exponentially--meaning that it increases the risk more than two-fold. Margin is only suitable for people who can afford and who choose to assume this level of risk. If you were sold securities on margin, and have sustained large, unexpected losses, you might have a viable claim against the brokerage firm. For a free initial consultation, contact Diane Nygaard at 816-531-3100 or go to the "Contact" page of this website and send an e-mail describing your problem.

HOW CAN AN INVESTOR CHECK OUT A BROKER?

Before hiring an investment professional, I advise all investors to examine the advisor's background. Either your state securities commission or FINRA can provide an outline of the licensing exams a broker has passed, the existence of earlier complaints or arbitrations against the broker, and his or her employment history. You can also log onto the FINRA website at www.finra.org and click on the link to "brokercheck" for this information. With the media attention given "affinity" fraud--such as Madoff's defrauding his closest friends and religious acquaintances--do not simply rely on a recommendation from your friends.

Investment advisors must provide a new investor with Part II of "Form ADV," which contains information about compensation, experience and training. Examine questions 1C, 1D, 13A and Schedule F, which will disclose any financial deals that could contaminate the advisor's judgment and cause him or her to recommend one mutual fund company over another. Item 7 of Schedule D provides the advisor's financial planning credentials, and Question 6 provides the advisor's educational and business background. Part I is also important to examine and will list any legal or regulatory problems. When reviewing the ADV, first examine Question 11 of Part I. A "yes" answer to any of the questions is a signal that the advisor has had regulatory or legal problems. I hope that increased amounts of information will be required to be available to investors and that more investors will learn of these resources.

WHO REGULATES ADVISORS AND STOCKBROKERS?

Brokers must register with FINRA and with the states in which they do business or have clients. Financial planners, money managers and other advisers must be licensed as "investment advisors" by their states, or, if they have $100,000,000 or more under management, with the SEC. This has now been extended to cover hedge funds.

WHAT IS AN ARBITRATION?

Arbitration is a dispute resolution process. Investors submit their claims to a panel for decision, rather than going to court. Arbitrators come from a variety of professional backgrounds. Many are retired judges, lawyers, accountants, and educators. The arbitral process replaces the traditional trial process. The panel hears the evidence as presented by the parties and studies the evidence in making a decision. There are no depositions, motions or appeals.

Hearings are generally held within one year of filing a claim. While the setting is fairly informal, arbitrators tend to strictly enforce various securities statutes and regulations. New evidence is not allowed at the last minute because all evidence must be disclosed 20 days before the hearing.

If you or a loved one has been harmed by your financial advisor, please contact us today. We'll evaluate your claim and, if we think you have a strong claim, pursue it vigorously.

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