Most investors, even investment professionals, have questions regarding the investment process – both prior to and after making an investment. The following FAQs are designed to provide basic information about the process of selecting a financial adviser and how to go about recovering losses that result from financial adviser misconduct.
1. How can I determine if my financial adviser is ethical?
Investing your savings is one of the most important aspects of your life. Selecting a financial adviser or is not an easy task for anyone regardless of investment experience. Investment opportunities can be hard to evaluate even though you have been promised that your investment objectives will be met. Securities markets will go up and down, and no one can predict the future. But too many investors lose money as a direct consequence of selecting an unethical financial adviser, and not because the markets performed poorly.
At Wittenberg Law, the goal is to help you select an ethical financial adviser. A financial adviser who follows best practices, who abides by the securities laws, rules and regulations, both state and federal, and who makes the client’s interests a top priority even though the financial adviser may make less money by doing so.
Wall Street intentionally designed the investment landscape so that financial advisers solicit your business without any “conflict-free,” professional investment intermediaries. Armies of financial advisers are paid to seek out investors, gather assets, and then profit from managing those assets. This system is replete with conflicts of interests that place the financial adviser’s interest in opposition to their client’s interest.
Simply stated, a financial adviser can make more money by advising clients to purchase investment products that benefit the adviser more than the client. While this may be hard to believe or understand, it happens far too often, subjecting innocent and trusting clients to substantially higher fees and investment risk, among other things, than is fair and just. Worse yet, many financial advisers are engaged in outright fraud, making promises of substantial, risk-free returns without any intention of delivering on those promises once you entrust them with your savings.
Wittenberg Law understands how an ethical financial adviser should operate. Therefore, Wittenberg Law can help identify whether your financial adviser follows best practices.
2. What does “conflict-free” advice mean?
In the context of investments, “conflict-free” means that the person providing you with investment-related counseling has no financial interest concerning your decision to make a particular investment or hire a particular financial adviser.
Wittenberg Law, for example, provides conflict-free investment-related advice because Wittenberg Law does not make any money in connection with your investment. In contrast, financial advisers only make money if you invest with them. A financial adviser who advises you to invest in a fee-based program will be compensated by charging you a percentage of the money you place in the program. This adviser will earn money regardless of whether your investment profits or losses money. A financial adviser who charges you a commission is compensated each time you transact (i.e., buy or sell) in the securities markets. Either way, the financial adviser is “conflicted” because his or her compensation is directly tied to your investment decisions.
3. How do I know if my financial adviser has taken advantage of me?
For most investors, it is very difficult to determine whether investment losses were caused by misconduct as opposed innocent (though bad) investment advice. That’s why you should consult with Wittenberg Law whenever you suffer investment losses – the consultation is complimentary and confidential.
4. My adviser tells me that my losses area a result of the poor economic conditions – is that true?
Maybe. But you can be assured that your financial adviser will always tell you that losses are the result of forces beyond his control because your adviser is providing your with conflicted advice. All too often advisers were the cause of the losses because the investment advice was made to provide the adviser with greater commissions or fees, and not to provide the client with a sound investment strategy.
5. What is securities arbitration?
Arbitration is a method of resolving a dispute by referring it to an impartial third party panel, which is agreed upon by those involved in the dispute. It is similar to a trial, except the judge and jury are replaced by a panel of one to three arbitrators.
Securities arbitration is typically administered by FINRA (the Financial Industry Regulatory Authority). FINRA is called a SRO (self regulatory organization) because it is set up and paid for by the broker-dealers, investment banks, wealth managers, and the like, which are members of FINRA. FINRA is often criticized as being overly favorable to its members in the securities arbitration process, and its SRO status lends itself to that conclusion as well. But, investors who are represented by well-prepared, sophisticated investment attorneys often obtain very favorable results for their clients notwithstanding the bias favoring the investment industry professionals.
6. How long does arbitration take?
Arbitration is perceived as being a faster and more affordable route towards resolution of a dispute than a civil court. This perception is not always reality, and depending on the circumstances, arbitration can be more costly than a civil court. Further, it is more difficult under the law to appeal a bad decision made by an arbitrator than a judge in court.
The average length of time from the initial filing of the statement of claim with FINRA until to the conclusion of the “trial” or final hearing by the arbitrators is ranges from approximately10 to 16 months. A “trial” or final hearing can take one day or several weeks depending on the complexity and number of the issues in the case, as well as the number of witnesses that have to be examined.
7. Where is the arbitration proceeding held?
FINRA has designated arbitration hearing locations in every U.S. state, typically located in big cities. The hearings are typically held in conference rooms located in office buildings (not courthouses).
8. Can my case settle prior to the final hearing?
Yes. Although we cannot predict the outcome of any given claim against a stockbroker or brokerage firm, most claims brought by investors are settled on favorable terms prior to the final hearing. Cases can be settled through direct negotiation between the parties, or by voluntary mediation, a step that can help the parties develop a strong sense of the relative strength of their own positions. In mediation, a neutral mediator approved by the investor and the brokerage firm facilitates settlement, but does not rule on disputed issues or make any binding decisions.
9. How much of my loss can I recover?
Depending on the facts of each case, the law allows for investors to recover losses ranging from a percentage of their loss to their entire investment loss, plus punitive damages, attorneys’ fees, and prejudgment interest. Investors much be certain to properly calculate their losses before settling a claim or requesting specific damages because the damage calculation can be highly complex at times and often requires an analysis by a securities damages expert witness.
10. What is your attorney’s fee and what are the costs involved?
Wittenberg Law represents investors generally on a contingent fee basis. Thus, if you do not recover any money, you do not pay an attorney’s fee. There are costs that, however, must be paid regardless of whether a recovery is obtained. These costs are typically paid by the client but each situation is analyzed on an independent basis from the perspective of whether the investor can afford to pay these costs.
Arbitration costs can include (but are not limited to) a filing fee (which could be up to $1,800), arbitrator fees and hearing session costs, expert witness fees, depositions (though depositions are disfavored by FINRA and, therefore, may not be applicable), and document copying expenses,. Generally, if your case settles before a final hearing, costs may range from $3,500 to $5,000. If the case goes to a final hearing (trial), costs may range from $10,000 to $15,000. The foregoing ranges are merely estimates and can increase or decrease depending on the facts of your specific case.
11. Does it matter when I file a claim to recover investment losses?
Yes. Filing a claim as soon as possible is very important. The sooner your file your claim, the more likely you will obtain recovery because information and witnesses are more available. If a case is not filed in a timely manner the financial adviser could potentially gain certain legal defenses that could bar your claim. These defenses are commonly referred to as Statute of Limitations defenses and may be as short as one year.
12. What are some of the important differences between arbitration and court proceedings?
There are some significant differences, the most important of which is the final nature of the arbitration decision. Unlike court cases, which permit you to appeal decisions made by the trial court or jury, it is very rare to find a basis for overturning the arbitrators’ ruling. Arbitration is also private and closed to the public. Additionally, the discovery and evidentiary rules in arbitration are more limited than court litigation, and each side will often have less information available than is typically the case in a state or federal lawsuit.
13. What is securities litigation?
Securities litigation typically describes a dispute between an investor and the company and/or promoters of the company concerning the purchase and sale of a security (i.e., stock, bond, mutual fund), whether via a public or private offering of securities.
While the claims made in litigation may be similar to those made in a securities arbitration, the forum is different. Litigation typically refers to filing a case in court (as opposed to an arbitration or mediation forum). Like arbitrations, litigation often settles prior to trial, though the entire process may take longer in litigation if a trial is necessary.
14. What is securities class action litigation?
Generally, securities class action litigation is a lawsuit brought on behalf of numerous investors against a company (and/or its directors, executives, auditors, lenders, promoters, etc.) in which the investors have common claims for fraud or other misconduct by the defendants. The class action process allows potential plaintiffs to share the cost of litigation, which becomes especially important when individual losses are considered to be small. Plaintiffs have deployed the class action tool as a positive means of holding bad corporate actors responsible for their misconduct and affecting change among those who have and would foster a corporate culture of deceit, excessive greed and unaccountability.
In a securities class action, a lead plaintiff selects lead counsel to prosecute the case. The lead plaintiff is a fiduciary to the “absent plaintiffs” (i.e., the other plaintiffs in the class) and is therefore responsible for various aspects of the case including settlement negotiations. Securities class actions are generally handled on a contingent fee basis, so that the plaintiffs do no pay an attorney’s fee unless the attorney is successful in obtaining a recovery from the defendants. Additionally, the costs associated with prosecuting a securities class action can be in the hundreds of thousands or millions after paying for expert witnesses, copying costs, depositions, document production, among many other expenses.
Wittenberg Law constantly patrols the securities markets investigating corporate misconduct in an effort to protect investors from foul play and is equipped with the sophistication to prosecute a securities class action matter in a successful manner.
15. What is investment adviser/broker misconduct?
If a financial adviser (e.g., investment adviser, stockbroker, etc.) does not comply with applicable federal and state laws, rules and regulations, FINRA’s rules, and/or its own policies and procedures, then the financial adviser has engaged in misconduct. There are many sources of authority governing financial advisers, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940, FINRA’s rules and regulations. Each state in America also has securities laws that govern financial advisers.
Over the centuries, the investment field has consistently been riddled with con artists wherever and whenever investors are lured by the appearance of an investment that only goes up (e.g., the tulip craze in the 1600s, Charles Ponzi in the early 1900s through Bernard Madoff in the early 2000s). This is true whether the con artist is running a multi-billion dollar corporation and is friends with the president of the United States (i.e., Enron’s Kenneth Lay) or is operating a fledgling new company and seeks to raise a few hundred thousand dollars from friends and family.
Misconduct can take many forms such as fraud, breach of fiduciary duty, unsuitability, over concentration, excessive margin, undisclosed commissions, unauthorized trading, embezzlement, just to name a few. Each of the foregoing types of misconduct can be remedied by filing a claim for recovery once the misconduct is identified.