Frequently Asked Questions

Investment Fraud

Question: What is arbitration and how does it work?
Answer: Arbitration is similar to a trial, except the decision-maker is a panel of one to three arbitrators. The panel acts as both judge and jury, by hearing and weighing the arguments and evidence of both sides of a case, and then rendering a binding decision.

Generally, an arbitration panel includes at least one person from the securities industry and two non-industry people. These people may be accountants, attorneys, sales representatives, bankers, educators, retired judges, or other professionals.

Unlike court proceedings, arbitration usually does not involve depositions, motions, or appeals. Therefore, the arbitration process can be much faster and cheaper than civil lawsuits.

Question: Who conducts the arbitration proceedings?
Answer: The three main forums for resolving securities disputes are the National Association of Securities Dealers, the American Arbitration Association, and the New York Stock Exchange.

Question: What is a pre-dispute arbitration clause?
Answer: Virtually every securities brokerage firm asks an investor who is starting a new account to sign a standard form with a clause requiring resolution of any grievance through arbitration, instead of the court system. As a result, the vast majority of stock fraud cases proceed to arbitration.

Question: Are there any deadlines for filing an investment fraud claim?
Answer: Yes. The analysis of time limits for bringing a claim can be complex, because the facts in an investor’s complaint against a stockbroker, investment advisor, or financial planner may involve several distinct legal theories.

If the securities fraud claim alleges violation of Rule 10 b-5 of the Securities Act of 1933, it must be filed within one year of the time that the investor should have discovered the fraud, or within three years of the occurrence, whichever is less.

The deadlines for filing a fraud claim based on state law will depend on the legal requirements of that particular state. Moreover, the statutes of limitations for state securities fraud, common law fraud, breach of contract, and negligence may be subject to discovery, delayed accrual, or tolling rules, which could extend the time for initiating a claim. In some situations, an investor may be able to file a claim a decade or more after the first wrongful act occurred.

It is absolutely critical for anyone with a potential investment fraud claim to consult with an attorney promptly, to determine the deadlines that might affect his or her claim. Failure to act in a timely manner may result in loss of important legal rights.

Question: How can I avoid problems with future investments?
Answer: The following guidelines may help you avoid future problems:

Thoroughly read and save your monthly account statements, confirmations, and any other information you receive about your investment transactions.
Immediately question any transaction or entry, which you do not understand or did not authorize your broker to make. If you are not satisfied with your broker's response, complain promptly in writing to the management of your brokerage firm's sales office, and then directly to the firm's compliance department. Retain copies of your complaint letters and all other related correspondence with the broker/dealer.
Follow up, if the securities firm fails to respond satisfactorily to your complaint. You may need to pursue other alternatives, such as mediation or arbitration.
Whenever you invest, beware of sales pitches, which make exaggerated claims about the expected profitability of a particular investment, or make specific price predictions, such as, "your money will double in six months," especially when dealing with a new broker. Always remember: If it sounds too good to be true, it usually is.
Never send money to a firm or broker, based on an initial telephone sales pitch.
Beware of any broker who pressures you to invest quickly to avoid missing a "once in a lifetime opportunity.”
Make all investment decisions only after careful deliberation and consideration of all the relevant facts. After all, your hard-earned savings are at stake. You owe it to yourself and your family to take the time to understand all aspects of the proposed investment.
When investing for income and yield, in stocks, bonds, mutual funds, or similar financial instruments, make certain that you fully understand the nature of the security in which you are investing, because each type of security has different markets and price risks.
Investing in lower-priced, so-called "penny stocks" is inherently risky. Never do this without thoroughly investigating the company and the market for its shares. Generally, you should avoid such speculation, unless you are willing to risk losing your entire investment.
Investing your money is a major decision, similar to the purchase of a house. Before making this decision, you need to thoroughly investigate the potential investment, and the broker or securities firm, which are recommending it.

Question: What specific acts does the National Association of Securities Dealers (NASD) prohibit?
Answer: The NASD prohibits brokerage firms, stockbrokers, investment advisors, and others working in the securities industry from engaging in various types of conduct, including:

Recommending the purchase or sale of a security that is unsuitable, given the customer's age, financial situation, investment objective, and investment experience. Investment in a particular type of security is unsuitable or the amount or frequency of transactions is excessive, based on the individual situation of a particular customer.
Purchasing or selling securities in an account without the customer’s authorization for the sale or purchase, unless the customer gave the broker advance written authority to make those transactions.
Switching a customer from one mutual fund to another when there is no legitimate investment purpose for the switch.
Misrepresenting or failing to disclose material facts concerning an investment. Some of the information that may be “material” and must be presented to customers include the risks of investing in a particular security; the charges or fees involved; company financial information; and technical or analytical information, such as bond ratings.
Removing funds or securities from a customer's account without the customer's prior authorization.
Charging a customer excessive markups, markdowns, or commissions on the purchase or sale of securities.
Guaranteeing customers that they will not lose money on a securities transaction, making specific price predictions, or agreeing to share in any losses in the customer's account.
Entering into private securities transactions between a broker and a customer, when the transactions occur without the knowledge and permission of the sales representative's firm.
Trading to benefit the brokerage firm, rather than the customer.
Failing by a market maker to display a customer limit order in its published quotes, absent a valid exception.
Failing to use reasonable diligence to see that a customer's order is executed at the best possible price, given prevailing market conditions.
Purchasing or selling a security while in possession of material, non-public information regarding an issuer.
Using any manipulative, deceptive, or other fraudulent device or contrivance to effect any transaction in, or induce the purchase or sale of any security.

If you believe that you have been the victim of investment fraud or broker misconduct, it is important to talk with a Michigan investment fraud lawyer today. Please submit a simple, free and confidential legal consultation form now.

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