Victims of financial misconduct understandably have a lot of questions. At Hermann, Cahn & Schneider, we've got answers. Following are answers to some of the questions we hear most often. If, after reviewing this information, you would like to discuss your case with an experienced securities litigation attorney, please contact us today. From our office in Cleveland, Ohio, we represent clients throughout the country.
I lost a lot of money in my investment accounts. Is it my broker’s fault?
Maybe, but not necessarily. Brokers are not guarantors of profitable investing. Most investments involve some degree of risk and uncertainty, and your broker does not have a responsibility to ensure that you’ll make money. In fact, if a broker promises you’ll make money in a particular stock or in the stock market, you should get another broker. Nevertheless, in dealing with you and your investments, your broker is required to comply with high standards of commercial honor and just and equitable principles of trade. If the broker breaches his or her duties to you, and you suffer a loss as a result, the broker and his or her employer potentially can be made to compensate you for that loss.
What duties were owed to me by my broker?
Stockbrokers are fiduciaries and owe a duty of care and loyalty to their customers. Your broker was therefore obligated to do the following in making recommendations to you:
- Study any recommended investment to become sufficiently informed about its nature, price, and financial prognosis;
- Inform you of the risks involved in any purchase or sale;
- Disclose any conflict of interest in recommending a security, and refrain from putting his or her self-interest ahead of your interest;
- Disclose or refrain from misrepresenting any fact that a reasonable customer might find to be important to his or her investment decision;
- Refrain from transacting any purchase or sale until he or she obtains your express prior authorization; and
- Ensure that each recommendation was suitable.
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In addition to the above, one of the critical functions of a stock broker is to monitor the customer’s accounts and to make recommendations consistent with changes in economic and financial conditions as well as the customer’s needs and objectives. Thus, if your broker had a continuing course of business with you (as opposed to just transacting an occasional trade at your request), the broker was required to:
- Routinely review your accounts to ensure that investments continued to be suitable;
- Suggest to you which securities to acquire, liquidate, hold, or hedge;
- Explain how news about an issuer’s financial outlook could affect the performance of that issuer’s securities;
- Determine which sources would best answer your questions concerning investments, and use information from appropriate sources to provide you with relevant information; and
- Keep you informed about your investments.
If your broker violated any of the above-described duties, and the violation caused you to lose money, you have a valid claim for damages.
But the broker says that my losses were caused by “the market.” How can I find out whether my broker was at fault?
If you have changed stockbrokers, your new broker might detect wrongdoing by his or her predecessor. (We get many referrals from stockbrokers who make such discoveries.) Your accountant or tax-preparer also might notice problems in your accounts and alert you to possible wrongdoing. But eventually, you will need to have a qualified attorney review your investments.
Does it cost me anything to consult with you about my case?
No. Telephone conversations, meetings, and our review of your documents are all free of charge.
What happens if you think I might have a valid claim?
First, we’ll ask you to provide us with detailed information about your personal and professional background, your investment history, and your dealings with the financial professional in question. Then we’ll describe the nature of any suspected wrongdoing, we’ll candidly and thoroughly detail the weaknesses and strengths of your case, and we’ll point out any important questions that remain unanswered.
While our attorneys have extensive knowledge about securities litigation, lawyers are not permitted to testify on behalf of their clients and must therefore present expert testimony in the arbitration or trial. Thus, before we agree to represent you, we may recommend that your account documents be reviewed by a damages expert who can employ specialized programs and databases to track the course of your investments and calculate your losses under various damage theories. In the event we believe such an expert review is warranted, we will advise you of that fact and obtain your approval before engaging the expert. The cost for the expert’s initial review will vary, depending on the complexity and duration of the trading history. That cost must be paid by the client, but will never be incurred without the client’s prior approval and the provision of a preliminary estimate.
How will I be charged if you agree to take my case?
In most instances, clients who have suffered investment losses cannot afford or do not wish to incur hourly fees. Thus, we generally provide our services in exchange for a contingent fee. The fee is “contingent” because its payment depends on whether we are successful in recovering money for you. If we don’t recover, you don’t pay us. If we do recover, our fee will be a pre-arranged percentage of the gross recovery. The only cost to you will be the expenses of the litigation. These include filing and session fees assessed by the arbitration forum and costs incurred for experts, travel, court reporter services, copying, delivery, and long distance telephone calls. It is our standard practice to describe the contingent fee and expense reimbursement arrangements in a written fee agreement to ensure that the client is fully informed before he or she retains us.
Please note that you are not required to hire us on a contingent fee basis. If you would rather have us charge you by the hour, we will consider doing so. We also are willing to discuss hybrid arrangements in which a reduced hourly rate is combined with a reduced contingent fee. Please feel free to ask about these alternatives if you’re interested.
How long will it take before my case is resolved?
Unfortunately, because courts and the arbitration forums have extensive backlogs, securities cases do not move quickly. Whether we file in court or in an arbitration forum, you should plan on exercising patience. The minimum time from filing to a hearing is probably one year, but 15 to 18 months is more likely.
What happens in an arbitration proceeding?
Arbitrations are conducted under the auspices of the National Association of Securities Dealers (NASD). The case is commenced with the filing of a Statement of Claim, which is a complaint that spells out the relevant facts and the remedies sought. You will be designated the “Claimant” and the broker and brokerage firm will be referred to as the “Respondents.” Thereafter, the Respondents will file a written answer in which they’ll deny all of the claims and explain why they were not to blame, usually adding that you were really at fault or are simply lying.
The parties will then exchange document requests on each other. At this point, you’ll be required to produce tax returns and, to the extent you have them, things like correspondence, notes, appointment calendars, and account documents from all past and present investment accounts. Meanwhile, the Respondents will be required to provide lots of documents to us. They rarely do so promptly and they rarely give us everything we’ve requested and are entitled to receive. Thus, we may have to file motions to compel them to comply with the rules.
The parties will select a three-person arbitration panel from lists provided by the NASD. The panel will consist of one person employed within the investment industry and two persons who will be designated as non-industry arbitrators. Non-industry arbitrators will usually be lawyers, CPAs, or other business types. One of the three arbitrators will be selected as chairperson and will thereafter be responsible for running the hearings and making certain types of rulings on behalf of the panel.
During this entire period, which will last many months, we will be working up your case by reviewing documents, conferring with expert and fact witnesses, and preparing exhibits. We’ll be handling everything and there will be very little for you to do, though we will keep you apprised of any important developments. Eventually, as we approach the final hearing, we’ll have a number of extensive meetings with you to describe what will happen and to help you prepare to testify. The hearing sessions will be somewhat informal in nature and usually will be held in a conference room located in a hotel or office building.
At the conclusion of the hearing, the arbitrators will confer to arrive at a decision. The decision, called an “award,” will be issued to the parties in writing and will likely be final. While there is no appeal from an arbitration award, an award can be vacated in court for certain types of arbitrator misconduct. However, arbitration awards are rarely vacated.
What are the chances that I will recover some or all of my losses?
Remember, in most cases we handle, we only make money if we obtain a recovery for our client. Thus, we have a strong incentive to carefully assess the likelihood of recovery in each case. While we cannot provide assurance that you will recover anything, we will only agree to handle your case if we believe that it has merit and that you have a good chance of recovering.
Won’t regulatory authorities like the SEC and the NASD help me recover my losses so I can avoid arbitration?
No. Government agencies and regulatory authorities generally cannot help individual investors to recover their losses.
Will the broker or brokerage firm reimburse me for my losses if I complain or threaten to sue them?
Your chances of persuading a brokerage firm to voluntarily refund your losses are virtually non-existent. The firm will almost always explain that the losses were your fault rather than theirs. They will tell you this whether or not it is true. The strategy of most brokerage firms faced with complaining customers is to brush them off and hope they give up without a fight. Brokerage firms follow this approach because, unfortunately, the vast majority of customers do give up without a fight.
Is there a damage limit to the cases you’ll take?
No. We make the decision based on the particular circumstances of each case. While obviously there is no upper damage limit on the cases we accept, the expense and labor-intensive nature of the arbitration or litigation process makes some losses too small for us to pursue. Such cases usually are those in which the damages are less than $50,000. But we will consider taking a case of $50,000 or less when the wrongdoing is undeniable or when the broker’s misconduct was so egregious and offensive that we feel compelled to make an exception.
How long can I wait before I bring my claims?
That depends upon the type of claim at issue and the state in which the events occurred. While statutes of limitation apply to securities-related claims brought in court, respondents’ lawyers and claimants’ lawyers disagree as to whether they apply in arbitration. However, the NASD will not hear a case if six years have elapsed from the occurrence or event giving rise to the claim. Once that time limit has run, the affected claim may be gone for good. We have seen many viable cases that could not be pursued because the maximum time limitation has been allowed to run. Thus, the smartest thing you can do is to seek competent legal advice as soon as you suspect that there may have been wrongdoing in your investment account.
