“Common” Securities Claims

By Timothy Guilmette, Spring 2014 Student Intern

common lawSome investors seek advice from financial professionals when making investment decisions, and others use financial professionals to manage their financial affairs. Unfortunately, professionals make mistakes, communications get crossed and some even act contrary to their clients’ interest. If an investor feels like they were wronged, he or she may have the right to bring legal action against the individual or organization they work for, or both. There are many different claims one can assert in securities arbitrations. Today we are focusing on one type of claim: matters that arise under the common law. This post will discuss two common law claims that are frequently seen in FINRA dispute resolution proceedings: fraud and breach of fiduciary duty.

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Friday’s Fraud – Proxy Trading Accounts: Make Sure Your Trust has a Backup

By Benjamin Stubbs, Spring 2014 Student Intern

keysHow trusting are you? You probably would not lend the keys to your car or your house to someone except for limited situations. For example, you may have freely given your car keys to a valet at a restaurant or hotel, or you may have given your house keys to a neighbor or a house sitter when you went out of town. You probably would not lend the keys to your house or your car to a total stranger, however, regardless of what that stranger promised you. The risk of damage to your property would be too great, and how would you ever find the person if they stole your car or your belongings and made a run for it?

The same should be true for your investment accounts. How freely would you give someone the keys to those? This week’s fraud involves people who gave control over their investment accounts to scam artists who posed as trustworthy experts. Coming in seventh on NASAA’s list of most common investment frauds of 2013 is proxy trading accounts.  These are fairly simple schemes that are based on two words—trust me. When the trust is unfounded, though, people can lose a lot of money and have no way to get it back.

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Does This Investment Suit Me?

By Timothy Guilmette, Spring 2014 Student Intern

 

suitableInvestors today have more choices than ever before, and many investors feel more comfortable developing investment strategies with assistance from a licensed brokerage firm. Brokerage firms have associated persons (commonly referred to as brokers) who buy and sell securities on behalf of investors and make recommendations based on the investor’s individual investment profile. Brokerage firms and their associated persons, are required to gather specific information from a client before making recommendations.

Financial Industry Regulatory Agency (FINRA) Rule 2111, Suitability, places a duty on brokerage firms and their associated persons to “. . . 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 [firm] or associated person to ascertain the customer’s investment profile.” Let’s break that down and learn more about the Suitability Rule.

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The Beginnings of Securities Regulation in the U.S.

By Thomas Abrahamson, Spring 2014 Student Intern

flagSecurities regulation can be difficult to navigate given that it is heavily regulated. To truly understand securities regulation it helps to first understand the history of how these rules were formed. Knowing the history of when and why these regulations were crafted helps put them in better context in today’s world.

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Friday’s Fraud – Oil and Gas Drilling Scams: Don’t Drop Money Down Dry Wells

By Benjamin Stubbs, Spring 2014 Student Intern

oil gasFrom the Beverly Hillbillies to John D. Rockefeller, many people have struck it rich in the oil industry, and currently, many are hopeful that natural gas will prove to be just as rewarding. Before you invest in oil or gas, however, take a little advice from the Securities Exchange Commission (SEC): “If you think you’ve found the right oil or gas investment to ‘strike it rich,’ consider this: it may be a scam.”

Coming in sixth on NASAA’s list of most common investment frauds of 2013 is oil and gas drilling scams. NASAA explains that many who are frustrated with the volatility of the stock market turn to oil and gas but that “energy investments generally prove to be a poor substitute for traditional retirement planning.” Scammers often use high pressure tactics, combined with the glamour that many associate with oil drilling to steal investors’ money. I’ll give you a few tips below on how you can avoid falling prey.

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Arbitrator Selection: Why Do I Need to Do More Research? FINRA Already Gives Me Information on the Arbitrators!

By Dylan Donley, Spring 2014 Graduate Research Assistant

As we discussed yesterday, FINRA does provide a fair amount of information about each potential arbitrator, but the information given does not and cannot cover every detail of each arbitrator’s life that parties may consider relevant to making decisions about which arbitrators to choose to serve on their panel.

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Arbitrator Selection: What Information Does FINRA Provide about Potential Arbitrators?

By Dylan Donley, Spring 2014 Graduate Research Assistant

Yesterday, we provided an overview of the FINRA arbitrator selection process. In today’s post, we focus on the information FINRA provides to the parties on arbitrators. When FINRA submits a list or lists of potential arbitrators to the parties, Arbitrator Disclosure Reports are also included for each arbitrator. The Arbitrator Disclosure Reports contain information such as the arbitrator’s name, classification, skills, employment, education, training, conflict information, and any publicly available awards the arbitrator issued.

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