Topic Thread:      Investment Center   »   Investor Legal Help

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Investor Legal Help

Investment was once something thought of as what rich people do. Today, investing plays a key role in the financial well-being of millions of Americans. The Securities Industry Association (now the Securities Industry and Financial Markets Association - SIFMA) has stated, “the growth in individual investor participation has risen from 30.2 million U.S. shareowners in 1980 to 84.3 million in 2002.” According to a survey published by the Investment Company Institute and the Securities Industry Association, the latter figure encompasses 49.5 percent of U.S. households. Yet, how many of these investors really know the ropes when it comes to making the right investment decisions? Woefully few, laments the Oregon Department of Consumer & Business Services’ Division of Finance & Corporate Securities, noting that, “Less than one-fifth of those [Americans, who may or may not have been investors] polled passed a simple test asking whether stocks, bonds, savings accounts or certificates of deposit offered the best return over the last 20 years.”

So what can you do to avoid becoming financial fodder when it comes to investing your money? Sometimes, try as you might, things go wrong. Should an investment dispute arise in which you require legal help or feel it has become necessary for you to take legal action to protect or recover assets, investigate your options fully and carefully.

Before you go to the expense of hiring a lawyer, there may be other steps you can take to resolve an investment dispute. Note that, due to arbitration rules imposed on brokerage accounts, it is extremely difficult to successfully sue a broker or brokerage firm for wrongdoing; you must have an overwhelming preponderence of evidence in your favor. However, arbitration can actually work in your favor; you may be able to adequately present your case to an arbiter without the need to call upon expensive legal counsel. An arbiter should also be as accessible to you as to the investment firm whose action you are disputing, meaning that you are more likely to obtain a fair and impartial settlement. As with any legal action, documentation is the key. If you cannot properly and adequately document your case, you should not engage in either arbitration or lawsuit, for you will almost certainly lose.

But let’s back up for a moment — we’re getting ahead of ourselves. The primary way to avoid disputes before they arise or balloon out of control is to practice diligence. A few simple practices can avoid a great deal of pain. Many of the guidelines listed below apply to financial transactions in general, while others apply specifically to investment brokerage accounts.
  • Read all contracts and legal documents carefully.
  • Thoroughly familiarize yourself with your investment broker’s policies, procedures, guidelines and fees.
  • Know the industry jargon. If you are unfamiliar with terminology used, ask your broker, then consult additional sources (such as this site and the internet in general, including industry-specific sites) to assure yourself that the information you have been given is correct. Always consult multiple sources.
  • Never enter into a contract or arrangement without due diligence. Never permit yourself to be coerced or badgered into an agreement. Never fall for “this opportunity won’t last”, “get in on the ground floor” or “once in a lifetime” ploys.
  • Never, ever agree to anything offered by a telephone solicitor and never provide financial information to an unsolicited (either by phone, internet or door-to-door) caller. Legitimate brokerages, realtors and financial institutions do not operate in this manner. If you are truly interested in an unsolicited offer, ask for contact phone numbers and request that information be sent to you in the mail. This will enable you to receive the offer in writing and will provide you with time needed to research the offer and the soliciting company. Check with organizations such as the Better Business Bureau® (BBB) to see whether any complaints have been filed against the solicitor and whether any known complaints have been adequately resolved.
  • Promptly review any information received from your broker, including each brokerage statement. Brokerage statements should be received monthly or quarterly; this is often dependent upon level of activity in your account. Most brokerages now enable you to view your current account status on line. Brokerage statements delivered at greater than three-month intervals are entirely unacceptable.
  • Never pay in cash’ always leave a paper trail.
  • Insure that you receive written or electronic confirmation for each transaction. These confirmations should be delivered in a timely fashion.
  • Understand each entry in your brokerage account and be certain everything is properly accounted for. If you cannot understand your brokerage account or if it is not properly itemized, seriously entertain the idea of hiring a new brokerage firm. Remember — it’s your money. Sloppy accounting practices are indicative of firms that are either inept or have something to hide.
  • Bring any discrepancy you find to the attention of your broker or agent immediately. Do not wait to see whether it is corrected on the following statement. The more quickly you bring a mistake or questionable transaction to someone’s attention, the greater the likelihood will be for prompt resolution. If the mistake turns out to be your own, by being informed promptly, you will be less likely to repeat it or to incur additional fees or penalties. Penalties can sometimes be reversed if you provide a proper and plausible explanation as to exactly what happened. (Infrequent credit card late fees serve as an excellent example of reversible penalties.)
If your best efforts fail to resolve a dispute, the Securities and Exchange Commission has been established by the Federal government to investigate allegations of wrongdoing and fraud relating to the U.S. securities industry. Investors may wish to file an action with the SEC Center for Complaints and Enforcement Tips, listed below, if they genuinely feel they are the victim of deception or wrongful practices or if they believe securities fraud is involved. Remember that most disputes arise due to misunderstandings or clerical errors rather than from intentional deception. Granting your brokerage sufficient latitude in resolving an issue will result in greater satisfaction for you, retention of a brokerage’s good reputation (if deserved), and a more efficient SEC not burdened with frivolous complaints. Unless you have very good reason to suspect fraud, you should always exhaust all attempts at resolution (excluding arbitration and lawsuit) with your brokerage firm and their clearing corporation before contacting the SEC.

Authored by Kenneth L. Anderson.   Original article published 5 December 2003, updated 12 December 2005.

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