New York City lawyers Fighting to recover investor losses since 2004
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New York City Lawyers Fighting to recover investor losses since 2004

Stockbroker Arbitration

Investors who lose money as the result of careless mistakes or intentional fraud by their stockbrokers or financial advisers may be eligible to recover their losses through a process known as FINRA arbitration. FINRA arbitration claims can involve all types of investments, including stocks, bonds, annuities, and mutual funds. Investors may (but are not required to) prosecute their claims through a securities arbitration attorney or investor fraud attorney.

Seven Ways Brokers Lose Your MoneyMost customer claims against stockbrokers and financial “advisers” or “consultants” are required to be brought in arbitration before the Financial Industry Regulatory Authority, known as FINRA, rather than in court. The cases take about one year to complete and are decided at a hearing before either one or three arbitrators, depending on the size of the claim. FINRA arbitration hearings are held throughout the United States.

Approximately 60% (or six out of ten) FINRA arbitration cases nationwide are settled. Of the cases that go to a final hearing before the arbitrators, claimants and public investors have each historically won about half and lost about half.

A securities arbitration attorney or stockbroker fraud attorney may settle an even greater percentage of cases than the national average. For instance, Law Office of Christopher J. Gray, P.C. has historically settled more than eight out of ten cases. Of course, there are always cases in which the investor and the brokerage firm may disagree about a fair settlement value or in which the brokerage firm strongly denies wrongdoing and insists on taking the case to a hearing — in which case we as securities arbitration attorneys are happy to take the case to trial at the FINRA arbitration hearing.

Under the FINRA arbitration rules, an arbitration hearing takes place in a conference room with the parties, their investor lawyers and the arbitrators seated at table and resembles a cross between a trial in court and a meeting. Each side’s securities arbitration attorney is given the opportunity to summarize the evidence that they intend to prove in an opening statement. Then the claimant (investor), followed by the respondent (the brokerage), presents evidence through questioning of witnesses and presentation of documents. Finally, the parties give a closing argument summarizing the evidence and the reasons why each party believes that the evidence favors an award in the party’s favor, and the arbitrators retire to deliberate privately. Under the FINRA arbitration rules, within 30 days after the completion of the hearing, FINRA sends the parties a written award stating which party wins the case and the amount of money, if any, that one party must pay to the other.

Stockbroker Arbitration – Investor Fraud Attorney – Securities Attorney

FINRA arbitration proceedings on behalf of customers can cover a number of different topics. Traditionally, the following forms of wrongful conduct have given rise to claims:

1. Unsuitable Recommendations
These claims arise from recommendations by a stockbroker or “financial adviser” that result in losses in your account from investments that were not appropriate for your risk tolerance, overall financial situation, or investment objectives. Suitability claims frequently involve recommendations by stockbrokers to invest all of an investor’s money in stocks, to borrow money from the brokerage on margin, or to invest heavily in a single stock or mutual fund or a small group of stocks.
A fundamental concept of investing is diversification. If a customer’s account is concentrated in any individual investment or type of investment, then the risk associated with the customer’s portfolio is dramatically increased. A broker should never place all of the customer’s investment “eggs” in one basket. A broker who fails to diversify a customer’s account may be liable if the investment significantly declines in value.

Investment Lawyer

To consult a investment fraud attorney/ stockbroker fraud attorney to see if you may have a FINRA arbitration case for unsuitable recommendations, call or e-mail

2. Excessive Margin
Margin is a term for money that is borrowed by an investor from a brokerage firm. Firms sometimes charge as much as 9% interest on these loans, which are sometimes not even called to the customer’s attention. In addition to costing investors money because of the interest rate charged, margin debt increases an investor’s exposure to losses if the value of the investments owned by the investor decreases.

Investors who have been overcharged for margin without their knowledge or whose losses have been magnified due to the imprudent use of margin by a stockbroker or investment adviser may have valid arbitration claim.

Securities Attorney

To consult a securities arbitration attorney/ stockbroker fraud attorney to see if you may have a FINRA arbitration case for excessive margin, call or e-mail

3. Overconcentration / “Exercise and Hold” of Stock Options / Employer Stock
For decades employers have sought to motivate, retain and compensate valued employees with stock options. Unfortunately, in recent years many stockbrokers have advised investors to unwisely exercise their stock options (with money borrowed from the brokerage firm) and then hold the underlying stock for more than one year to gain a more favorable tax treatment, often with disastrous results.

The two main types of employee stock option programs are Incentive Stock Options and Non-qualified stock options. The main difference between these types of plans for a participant is the tax treatment at the time of exercise and sale.

The Incentive Stock Option incurs no income tax at the time of exercise. However, in order for the investor to receive capital gains treatment upon sale, the holding period must exceed one year. Otherwise the gain is considered ordinary income for tax purposes. This particular tax preference given to the Incentive Stock Options requires that the exercise be considered for the AMT calculation. The AMT Income is the difference between the grant price and the fair market value on the date of exercise. The AMT tax rate is 28% of the gain described above and is due if it exceeds the tax using the standard method.

The Non-qualified stock option incurs an income tax at the time of exercise. The gain is taxed as ordinary income on the difference between the grant price and the fair market value on the date of exercise.

The risks faced by all employee stock options plan participants who have exercised options are the same — the loss of an inordinate amount of money if the employer’s stock’s share price drops. The concentration of an investor’s retirement “nest egg”, which represents for many a lifetime of work, into a single stock can be disastrous in these circumstances. The losses experienced by many investors who were led by bad advice into such strategies in recent years were magnified by the margin debt that stockbrokers advised them to incur in order to exercise their options and hold shares of company stock.

There is a specific duty on the part of stockbrokers and financial advisers (and the financial institutions they represent) to manage a concentrated portfolio and the unique risks associated with this type of an account. Many investors with losses resulting from improper “exercise and hold” strategies have won substantial arbitration awards.

Securities Attorney

To consult a investment fraud lawyer/ stockbroker fraud lawyer to see if you may have a FINRA arbitration case for over-concentration, call or e-mail

4. Failure to Hedge
During the1990s, techniques known as “variable prepaid forward contracts” and “costless” or “zero cost” collars became commonly used to hedge the risk associated with an investor’s investment in a single stock. These techniques provide a relatively low-cost effective insurance policy against losses arising from a rapid drop in the share price of company stock owned by an employee who has exercised stock options. Unfortunately, many stockbrokers and investment advisers who should have recommended such strategies failed to do so, instead recommending the extremely high risk “exercise and hold” strategy discussed above.

In certain circumstances stockbrokers and investment advisers have a duty to recommend appropriate steps to investors to decrease their risk exposure to concentrated stock positions. Investors, who have lost substantial sums due to their concentration of their investments in a single stock, without any hedging techniques being recommended, may have a valid arbitration claim against their stockbroker or investment adviser.

Securities Attorney

To consult a securities arbitration attorney/ stockbroker fraud attorney to see if you may have a FINRA arbitration case for failure to hedge, call or e-mail

5. Unauthorized Trading
Unauthorized trading occurs when the broker executes transactions in a customer’s account without the customer’s permission and the broker has not been given discretion to make such trades. In order to prove the transaction was unauthorized, it is crucial to review the time stamp on the order ticket for the transaction and the client’s phone records.

Investment Lawyer

To consult a investment fraud lawyer/ stockbroker fraud lawyer to see if you may have a FINRA arbitration case for unauthorized trading, call or e-mail

6. Negligence and Inattention
A stockbroker has a duty to manage accounts and carry out customer instructions with reasonable care. Investors may have claims for recovery where stockbrokers, “financial advisers” or brokerage firms do not exercise reasonable care in managing an investor’s account.

Negligence is conduct that falls below the “legal standard” established to protect others against unreasonable risk of harm. Generally, negligence is the failure to use such care as a reasonably prudent and careful person would use under similar circumstances. Each state has its own standard of negligence and there are many types of claims for negligence. For an act to be negligent, the actor may not intend the consequence of his conduct, but a “reasonable person” in his position would have anticipated those consequences and taken “reasonable” precautions to guard against them. If a broker is negligent in his dealings with a customer, then the customer may have recourse against that broker.

The relationship between a stockbroker and a customer can also be a fiduciary relationship if the customer looks to the broker for advice, the broker is aware that the customer is depending on the broker, and the broker accepts that responsibility. When a fiduciary relationship exists between a stockbroker and a customer, a stockbroker has an even higher obligation to use the utmost duty of loyalty, good faith and care toward the customer.

Securities Attorney

To consult a securities arbitration attorney/ stockbroker fraud attorney to see if you may have a FINRA arbitration case for negligence, call or e-mail

7. Churning
Churning is excessive trading of an investor’s account in order to generate broker commissions.

If an investor sees numerous stock trades on his or her monthly statements every month, the stockbroker may be trading the account just to run up commissions, possibly providing a basis for a valid arbitration claim.

To prove that the pattern of trading in the account was excessive, the account statements are analyzed to determine: the annualized rate of return that would be necessary to cover the commissions charged in the account; the number of times the equity in the account was turned over to purchase new securities; and the purchase and sale trading activity that occurs in the account. The customer must prove that the broker exercised actual control over the decision making in the account, the trading was excessive, and that the broker acted in reckless disregard of the customer’s interests.

To consult a securities arbitration attorney/ stockbroker fraud attorney to see if you may have a FINRA arbitration case for churning, call or e-mail

Arbitration claims may also arise from the sale of inherently unsuitable securities for which the brokerage firm lacks a reasonable basis to believe they are appropriate for any retail customers. Some securities that have recently been the subject of such so-called “reasonable basis suitability” claims are as follows:

  • Lehman Brothers Principal Protected Notes
  • David Lerner Associates “Apple” REITS
  • Private Placements and Unregistered Securities
  • Mortgage Backed Securities
  • Mutual Funds
  • Merrill Lynch Pass-Through Certificates
  • Tenancies In Common (“TICs”)
  • Non-Traded Real Estate Investment Trusts (“REITs”)
  • Collateralized Debt Obligations (“CDOs”)

To consult a investment fraud lawyer/ stockbroker fraud lawyer to see if you may have a FINRA arbitration case to recover your financial losses arising from these or other types of securities, call or e-mail for a confidential, no-cost consultation.

Client Reviews
Chris did a great job with my case. He managed my expectations in the beginning of the process, consulted me along the way and always made sure I knew the advantages and disadvantages of decisions we collectively needed to make. He is very knowledgable about the finanical industry and how they work legally, which very much helped me and my legal initiative successful. Chris is straight-forward and doesn't mess around. I was very please with his professionalism and the outcome of my case, and would recommend him to anyone that is pursuing action against any company in the financial services industry. Greg
Chris displayed extreme professionalism. His dedication, research, and concern for his clients pocket book was displayed to the fullest when Chris tried my case. His diligence and perserverance were rewarded when we won our case. I have reccommended Chris to numerous friends who have concurred with my positive assessment. Jay
Chris became my lawyer for a FINRA Arbitration case in 2008. He listened to my complaint, filed notice soon after and engaged an expert witness. We discussed mediation, found it to be agreeable and approached the defendant who at first agreed and at the last minute reneged. At all times Chris kept me informed of the process, costs and developments. Andrew