Securities Litigation & Arbitration

The most important thing to understand about securities litigation and arbitration is that while many people lose money, not everyone has a claim. You want an experienced Boca Raton, Florida, securities litigation and arbitration attorney on your side, so you can determine whether or not you have a case, which should be filed. With over 30 years of extensive experience representing and protecting individuals in securities matters with the goal of seeking justice, a successful outcome and compensation for his clients, Russell Forkey has created numerous legal strategies that have successfully settled or won cases and received compensation for his clients.

When a dispute arises between a client and a brokerage firm, investment adviser or other type of financial institution, time is not on the side of the client. Most clients have heard of the statute of limitations. However, what most clients do not know is that the statute of limitations varies according to the cause of action that forms the basis of the claim and the state law of the venue where the claim is pending. When arbitrating matters, another issue that needs to be considered is how long a claim will remain eligible for arbitration. Therefore, it is important to act immediately.

Moreover, from a practical standpoint, if you elect to file against a boutique brokerage firm that does not have a large net capital requirement, the clients whose cases are heard first have a much higher chance of having their settlement or award satisfied.

There are many securities claims filed each year, so it is important to make your claim stand out. We look for the factual circumstances of your case that make it unique, so we can distinguish your claim from that of the average investor. The theme of each case and how it is presented is important. Providing a complete analysis of the facts and law underlying your case at a free initial consultation, we will help you decide whether or not you have a claim, what causes of action you have and what your potential damages might be. At this time, we will also explain the arbitration or litigation process to you, which will include the average length of time that it takes to conclude most matters.

Attorney Russell Forkey and his dedicated staff are prepared to provide you with any information you might request relative to your potential claim. An expert witness will only be retained, with your approval, if it appears that your case will be preceding to trial/final hearing, keeping your costs down. We are prepared to handle litigation and arbitration for a wide range of securities disputes and the factual and legal issues relating thereto, including:

Accredited Investors: A large number of investors have heard the phrase “accredited investor” but do not know what it means or what makes an individual one. As it relates to individuals, the federal securities laws define accredited investor in Rule 501 of Regulation D (see below Regulation D) as: (1) a natural person who has an individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million dollars at the time of purchase or (2) a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. The good news is that just because you are an accredited investor you are not without rights. Depending upon the particular facts and circumstances that exist relative to your matter, most, if not all, of the same laws, rules and regulations that protect non-accredited investors will also protect you.

One of the things that I have noticed over the years is that many accredited investors such as doctors, lawyers, certified public accountants and other professionals wait much longer than most other people to seek counsel to review and potentially take action against their brokerage firm and investment adviser. Believe it or not, my experience has shown that it takes varying degrees of time for such individuals to physiologically come to grip with the fact that someone with their intelligence and training could have been taken advantage of. One of the things that I usually remind them of is that intelligence and wealth do not do them any good if they are lied to. Being lied to is one of the things that the law is designed to protect them against.

Affinity Fraud: Affinity fraud focuses on investment fraud directed at certain identifiable groups, such as religious or ethnic communities, the elderly or certain types of professional groups. The individuals that attempt to perpetrate this type of fraud are usually members of the group that they are attempting to defraud. They use their membership in the group to gain the members’ trust and confidence.

Best Price — Best Execution: Failing to use reasonable diligence to see that the customer’s order is executed at the best possible price or that the brokerage firm does not receive a better price than one of its customers for the same security that is purchased on the same day.

Borrowing of Funds From Clients: It is a prohibited activity for an account executive to borrow funds from a client. This is particularly true when the borrowed money comes from the client’s account at the brokerage firm, on margin. In order to cover up this prohibited activity, the account executive usually has the client request a check, from his account and deposit the check into the customer’s bank account. The account executive then has the client write him a check from his bank account thereby attempting to conceal the loan from his firm. Fortunately for the customer, the firm may be liable for the loan if the account executive does not pay the money back.

Breach Of Fiduciary Duties: A stockbroker must act with the utmost loyalty and care in dealing with his customer and the customer’s assets. However, this general concept is materially impacted depending upon the exact nature of the relationship that exists between the firm/account executive and the customer. There are three general relationships that exist between a customer and the broker-dealer and/or account executive. The first is a non-discretionary account. The second is a discretionary account. The third is a hybrid account, which falls somewhere between the purely non-discretionary and discretionary account relationship, which depends upon the particular facts of each case. For the duties associated with each type of account, please see below. It usually takes an attorney experienced in securities matters to fully develop the type of account relationship that existed based on the unique facts and circumstances of each case. See discretionary, non-discretionary and hybrid account discussion below.

Churning — Excessive Commissions (Markups or Markdowns): Churning is an interesting concept. It usually arises in accounts over which the account executive has discretion, makes unauthorized trades or, in a hybrid type of an account, where the client customarily rubber stamps the recommendations of the account executive. In other words, the account executive exercises control over the volume and frequency of trading. Generally, the reason that the trade is made is so that the broker/dealer and/or the account executive receive commissions at the expense of the profitability of the customer’s account. It is for this reason that such activity is illegal. Once it is determined that the account executive had control over the trading in the account, various mathematical formulas are used to reflect that the account was churned and what effect it had on the account profitability. Whether churning exists in a particular circumstance depends quite heavily upon the facts of the case, including what the client’s investment objectives were.

Confirmations: There are three sets of documents that are of significant importance to clients of brokerage firms. Confirmations are one such group of documents. You will have to read the other sections of the page to find out what the others are.

Each time that a purchase or sale transaction takes place in a customer’s account, a confirmation of that transaction is generated and mailed to the client. The importance of reviewing confirmations in non-discretion and hybrid accounts are, in the opinion of the author, critical for the clients’ protection. The confirmation will reflect the date of the transaction, the security that was purchased or sold, the gross and net costs or proceeds, the commission, mark-up or mark-down and usually whether or not the transaction was solicited or not. With this information, the client will be able to determine whether or not the trade was authorized and if it was whether or not it was completed in accordance with all representations made by the account executive.

It is important for the client to understand what it means to have a transaction marked “solicited” or “unsolicited”. If the transaction is market solicited, this generally means that the investment idea was that of the account executive. If the transaction is market unsolicited, this generally means that the investment idea was that of the customer. However, the facts of each will have a material impact on the degrees of culpability associated with these terms between the client and the account executive. Experienced counsel will be invaluable in helping the customer present this issue to the trier of facts.

Discretionary Account: In a discretionary account, the account executive becomes the fiduciary of his customer in a broad sense. Such a broker, while not needing prior authorization for each transaction, must (1) manage the account in a manner directly comporting with the needs and objectives of the customer as stated in the authorization papers or as apparent from the customer’s investment and trading history; (2) keep informed regarding the changes in the market which affect his customer’s interest and act responsively to protect those interests; (3) keep his customer informed as to each completed transaction; and (4) explain forthrightly the practical impact and potential risks of the course of dealing in which the broker is engaged. Although no particular type of trading is required of account executives handling discretionary accounts, most concentrate on conservative investments with few trades. When an account executive engages in more active trading, particularly where such trading deviates from the customer’s stated investment objectives or is more risky than the average customer would prefer, the broker has the affirmative duty to explain the possible consequences of his actions to his customer. This explanation should include a discussion of the effect of active trading upon broker commissions and customer profits. See also hybrid account.

Execution Failures: If you direct your broker or account executive to execute a transaction (either a buy of sale) at a particular price or at the market and they do not act to immediately do so, it could be a case of negligence. This type of failure may also arise in the customer’s dealings with an online trading firm where the client is attempting to place his own trades.

Financial Industry Regulatory Authority (FINRA): Most, but not all, broker-dealers are required to become members of FINRA in order to conduct securities business. As a condition of their membership in FINRA, the firms and their registered representatives agree to comply with all of the rules and regulations adopted by FINRA. The breadth of these rules and regulations is so broad that it would be impossible to summarize each, how they interrelate and how they impact various factual scenarios facing diverse clients. Suffice it to say that this is another area where an experienced attorney is invaluable.

Notwithstanding the foregoing, a few examples of relevant FINRA rules that most investors have heard about are the “suitability” and “know-your-customer” rules. These rules generally provide that a member or associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation. See unsuitable recommendation discussion below.

Hybrid-Type Account: Between the purely non-discretionary account and the purely discretionary account there is a hybrid-type account. Such an account is one in which the account executive has usurped actual control over a technically non-discretionary account. This is the most common type of account relationship that exists in claims filed by customers. In such cases, the courts have held that the account executive owes his customer the same fiduciary duties as he would have had the account been discretionary from the moment of its creation. There are numerous facts that come into play to support such contention by a client. The development of these facts is enhanced through the experience and expertise of the customer’s attorney.

Investment Advisers:We handle breach of contract and breach of fiduciary duty claims against these firms because of risk and lack of liquidity.

Margin Abuse: Improper use of margin may adversely affect profits, but it takes an experienced lawyer to spot abuse.

Monthly Account Statements: Monthly account statements are the second group of documents, which are of critical importance for customer protection. As most clients know, monthly account statements summarize all of the activity that has taken place in the customer’s account for the preceding month. These documents should be reviewed carefully and the information contained therein should be fully understood by the client. If you don’t understand something contained in the statement call and ask questions until you do. If you see something that you don’t agree with call the account executive immediately. If such circumstances arise, take notes of the conversation for as time passes memories sometimes fade.

The monthly statements generally will reflect the total value of the customer’s account, whether or not the account is on margin, what the margin interest rate is, the purchase and sale activity that has taken place in your account (which should match the information on the confirmations for that month), and the amount of money that you have either deposited or withdrawn from your account. Usually, the monthly statements will provide summaries of certain information for the month and year to date. This will allow the customer to get a feel for what direction the account is headed in.

New Account Documents: This is the third set of critical customer documents. If you have read this page of the website, it should have become very apparent to you that such things as your income, net worth, prior investment experience and investment objectives are of paramount importance in your dealings with your broker-dealer and account executive. The new account documents are designed to do two things, protect the firm and protect the client. The forms generally set the standard by which the activity in the customer’s account is compared against. For example, if the new account document indicated that the client’s investment objective was income, does the recommendation of a stock that has never paid a dividend make any sense? Consequently, it is of supreme importance that the client provide complete and accurate information relative to all of the questions asked on the forms. Do not leave it up to the account executive to complete the form for you. Also, ask for a completed copy of the form, verify its accuracy and keep a permanent copy for your records. If any material changes take place relative to items disclosed on your original new account documents, make sure that you update this information with your brokerage firm and keep a copy of such notification or updated account documents in your permanent file. You never know when you may need them.

Non-discretionary Account: In a non-discretionary account, the customer rather than the account executive determines which purchases and sales to make. In a non-discretionary account, each transaction is viewed singly. In such cases, the account executive is bound to act in the customer’s interest when transacting business for the account; however, all duties to the customer cease when the transaction is closed. Duties associated with a non-discretionary account include: (1) the duty to recommend a stock only after studying it sufficiently to become informed as to its nature, price and financial prognosis; (2) the duty to carry out the customer’s orders promptly in a manner best suited to serve the customer’s interests; (3) the duty to inform the customer of the risks involved in purchasing or selling a particular security; (4) the duty to refrain from self-dealing or refusing to disclose any personal interest the broker may have in a particular recommended security; (5) the duty not to misrepresent any fact material to the transaction; and (6) the duty to transact business only after receiving prior authorization from the customer. The precise manner in which an account executive performs these duties will depend to some degree upon the intelligence and personality of the customer. See also hybrid account.

Regulation D/Private Placements (Offering Memorandum): Under the Securities Act of 1933 (the “act”), a company the (“issuer”) that offers or sells its securities must register the securities with the Securities and Exchange Commission or find an exemption from the registration requirements. One of the exemptions available is called Regulation D. This regulation contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register its securities with the SEC.

While companies using a Regulation D exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what’s known as a “Form D” after they first sell their securities. Form D is a brief notice that includes the names and addresses of the companies executive officers and stock promoters, but contain little other information about the Company.

If you are thinking about investing in a Regulation D Company, you should access the EDGAR database to determine whether the company has filed a Form D. If the company has not filed a Form D, this should alert the investor that the company might not be in compliance with the federal securities laws.

Importantly, if the company has not complied with all of the requirements of Regulation D, which are fairly voluminous and technical, you may have a claim under both the federal and state securities laws against the issuer and others to recover the amount of your investment. However, this requires an experienced attorney that understands the requirements of the appropriate statutes, rules and regulations to review the facts of your potential case, along with the private placement or offering memorandum in order to render such an opinion. Moreover, Regulation D does not preempt the anti-fraud provisions of federal and state law and common law claims such as fraud and/or negligent misrepresentation in the inducement. Interestingly, if a Regulation D offering was sold to you by a broker/dealer, you may have a claim against it and the registered representative that sold the investment to you as well as against the issuer. Some examples of such investments would be secured and unsecured promissory notes and investments in small, start-up companies generally with no material financial condition.

Stockbroker Misrepresentation And Omission Claims: Both federal and state statutes, as well as the common law in each state, make it illegal to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. Many times what is a material fact is a combination of fact and law. As such, your chance of proving this type of claim is enhanced by retention of experienced counsel.

Theft: If an account executive removes money from your account without authorization, it is considered theft. Not only can the account executive be held liable therefore, but the brokerage firm may also have some liability to repay the money.

Unauthorized Transactions: Any unauthorized purchases and sales in your account are illegal. Both the brokerage firm and the account executive may be held liable to repay money lost as a result of this activity.

Unsuitable Investment Recommendations: It is inappropriate for a broker/dealer and its account executive to recommend to a customer an investment that is unsuitable to meet, among other things, the client’s investment objectives. This situation may arise in a number of ways. For example, the firm or its account executive may know that the recommended investment is not appropriate for the customer and actually tells the customer otherwise. The unsuitable recommendation may result from the fact that the account executive does not have any idea how to analyze the investment or makes an error in his review of the investment, which thereby leads him to tell the client that it is suitable when in fact it is not. In such circumstances, the firm and/or its account executive may be liable to the customer for losses associated with an unsuitable investment. In order to maximize your opportunity to recover in such a situation, your counsel must be able to examine the account executive sufficiently to show that the investment was unsuitable for you and the reasons that it was.

Variable/Fixed Annuities: Annuities are insurance products that have investment characteristics built into them. Generally, annuities are not suitable elder persons. These investments carry their own set of unique risks, including surrender charges and additional costs associated with each ad on to the policy.

Secured And Unsecured Promissory Notes: These types of investments carry their own unique risks and are not suitable for many investors.

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.