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Can I Sue My Broker?

Securities Lawyer Jonathan Kurta
By: Jonathan Kurta Author

Investors who have lost money due to their stockbroker’s misconduct or risky investments will inevitably ask: Can I sue my stock broker?

It is not always possible to sue your stock broker or financial advisor in a state or federal court, but you can recover your investment losses through a process called FINRA arbitration. Most firms require investors to sign a “pre-dispute arbitration clause” as part of their contract. Unless you read the fine print, this may come as a surprise. Instead of suing in a civil court, investors typically must pursue their claims through FINRA arbitration.

The Financial Industry Regulatory Authority appoints arbitrators to hear the facts of the case and these arbitrators then render an award. They serve as both judge and jury for investor disputes.

According to FINRA, most cases that settle resolve in about 16 months. This is quicker than a civil case, which may drag on for years. FINRA arbitrators are supposed to be neutral parties, although many arbitrators have spent years in the financial industry, which suggests a potential bias.

Settlement vs. FINRA Award: What’s the Difference?

Arbitration panels will award investors if they find the broker or brokerage firm liable for damages. But a settlement might happen before the arbitration panel can render an award. If the brokerage firm knows that the case against them has merit, they may choose to settle instead of paying the fees associated with FINRA arbitration.

Settlements are the most common form of dispute resolution. In 2021, 15% of investor disputes ended with an arbitration settlement. 59% of cases were settled via a direct settlement. No matter how your case resolves, a FINRA lawyer can make sure you get the largest settlement possible. In some cases, your stock fraud lawyer can also expedite the process.

Why Do I Need a FINRA Arbitration Lawyer?

  • Level the playing field. Because FINRA arbitration is distinct from regular court proceedings, investors should only hire an attorney who specializes in cases involving securities fraud – these attorneys are sometimes known as FINRA lawyers. The stockbroker and their firm will also have legal representation, and FINRA cannot furnish you with legal advice. FINRA lawyers specialize in arbitration and can help guide your responses during the discovery process.
  • FINRA lawyers are familiar with common brokerage defense strategies. Investors are often surprised when they hear their stock broker’s characterization of the dispute. Stock brokers who steal funds or recommend extremely risky investment strategies for the sake of their own commissions may come up with outlandish excuses for their behavior or blame personal struggles. No matter what they come up with, your FINRA lawyer will have heard it all before.
  • Picking the right arbitrators. As mentioned above, arbitrators may skew pro-industry. Both the claimant (the investor) and the respondent (the broker and/or brokerage firm) receive a list of arbitrators to choose from and then rank them according to preference. Your FINRA lawyer may have direct experience with the potential arbitrator and can research their past decisions. An arbitrator who has never awarded an investor with a settlement is obviously not an ideal candidate. You will want these behind-the-scenes insights as you make your way through the arbitration process.
  • No second chances. FINRA arbitration awards are legally binding, and appeals are extremely rare. In other words, once a case has been resolved, there are no second chances—seek legal counsel so you can get it right the first time.

Do I Sue My Brokerage Firm or the Stockbroker/ Financial Advisor?

Investors may worry about the financial effect an award or a settlement might have on their stockbroker. Remember: You have every right to look after your financial future. But also keep in mind that unless they are specifically asked to contribute to a settlement, stockbrokers often make it out of investor disputes relatively unscathed and the brokerage firm covers the cost of the dispute.

Brokerage firms may also be held liable if they failed to supervise their stockbroker. FINRA requires firms to maintain supervisory systems and look for red flags of fraud or misconduct. If they should have caught on to excessive trading or unsuitable recommendations, the investor could have an excellent case. 

Do I Have a Case Even If I Signed Something Acknowledging Risks?

Yes—Kurta Law has successfully secured settlements for investors who have signed documents acknowledging risks. FINRA lawyers may point out inconsistencies in these agreements and may be able to argue that the firm should have never produced such a document in the first place.

Can I Sue My Broker Because of a Stock Market Crash?

Stock market crashes are predictable events. If there was a chance your investments could suffer in the event of a crash, your stockbroker or adviser should have clearly outlined that possibility.

Particularly risky strategies, like trading on margin and short-term options trading, are only meant for especially wealthy and experienced investors. If your stockbroker told you about the potential benefits of these types of strategies without informing you of the potential for losses or expensive fees, you could have a viable case for FINRA arbitration.

Can I Sue My Financial Advisor for a Conflict of Interest?

Whether you can sue your financial advisor for a failure to disclose a conflict of interest depends on the specific circumstances and applicable laws. While a conflict of interest itself may not automatically warrant a lawsuit, if your financial advisor’s conflict of interest resulted in financial harm or breached their fiduciary duty, you may have grounds for legal action. Consult with a Kurta securities attorney who can evaluate the details of your case, assess the advisor’s actions, and provide guidance. We will consider factors such as the nature and extent of the conflict, any resulting damages, and the applicable legal standards to determine the best course of action for pursuing your claim.

Can You Sue a Broker for Giving Bad Advice?

Yes, you may be able to sue a broker for providing bad advice if it can be proven that the advice was negligent, misrepresented, or unsuitable for your investment goals and risk tolerance. Brokers have a duty to recommend investments that align with their clients‘ best interests, and if they fail to do so and provide advice that results in financial loss, investors may be able to recover. Consult with one of our securities attorneys to evaluate the specifics of your case and determine the appropriate legal recourse.

How Long Do I Have to File My Claim?

You have six years to file a statement of claim, but it is best not to wait. Records tend to get lost, and it’s better to file your complaint when you can still remember where to find all your information.

When Can I Sue My Financial Advisor?

You can sue your financial advisor when they have engaged in misconduct or breached their fiduciary duty, resulting in harm or financial losses. Common causes for complaints include:

  • Unsuitable Investments. Suitable investments take into account an investor’s financial goals, age, risk tolerance, tax status, and investment horizon. Brokers are not allowed to recommend risky investments to customers who have stated that they want reliable investments.
  • Selling Away. Brokers might recommend an investment that has not been approved by their firm. Investors may not realize that the broker is offering an investment outside of the supervision of their firm, thus avoiding any safeguards against unsuitable securities.
  • Misrepresentation and Omission. To secure an investment (and perhaps a commission for themselves), brokers have been known to manipulate investors by misrepresenting an investment or omitting essential information about the risks, tax consequences, or fees.
  • Churning/ Excessive Trading. Executing securities transactions usually comes with a fee and a commission for the broker. Quantitively unsuitable trades are trades that are unsuitable due to the number of transactions. Eventually, too many trades will incur too many fees to be profitable for the investor.
  • Theft. If your broker or financial advisor stole money, you should speak with a securities attorney right away. Commonly referred to as “misappropriation” or “conversion,” broker theft typically involves a broker tricking their investor into transferring assets into an account that the broker can access. Brokers might also misappropriate investor funds for a Ponzi scheme.
  • Unauthorized Trades. Unless investors have approved their account for discretionary trading in writing, investors must authorize their broker’s trades.
  • Elder Financial Abuse. Unscrupulous brokers may take advantage of their elderly investor’s trust. This type of misconduct often precipitates unsuitable investment recommendations or broker theft.
  • Negligence. If your broker failed to perform their due diligence when they recommended a security or failed to appropriately manage your investing strategy, you may have a case for broker negligence.

Consult with a Kurta Law securities attorney to assess your specific circumstances and determine the appropriate legal course of action.

How Can I Sue My Broker?

When it comes to how to sue your financial advisor or individual broker, documentation and timely filing are key. Here are the steps most claimants will follow when pursuing arbitration against an individual broker:

  1. Gather evidence: Begin by collecting all relevant documentation, including account statements, trade confirmations, emails, and any other records that support your case. This evidence will serve as the foundation for your claim.
  2. Review the contract: Carefully examine the agreement or contract you entered into with the broker. Understand the terms and conditions, including any clauses related to dispute resolution or arbitration.
  3. Consult an attorney: Seeking legal advice is crucial when pursuing a lawsuit against a broker. Our experienced securities attorney will evaluate your case, guide you through the arbitration process, and ensure your rights are protected.
  4. File a complaint: One of our attorneys will help you draft a formal complaint, outlining the allegations against the broker and the damages you seek. This complaint will be filed with a regulatory agency called the Financial Industry Regulatory Authority (FINRA).
  5. Discovery: Discovery involves gathering additional evidence and information from the broker, such as internal documents or communication records that may support your case. Your attorney will handle this process, including depositions and interrogatories.
  6. Settlement or arbitration: In many cases, disputes between brokers and clients are resolved with a settlement. If a settlement cannot be reached, your attorney will represent you in FINRA arbitration before an arbitration panel. Most investment contracts preclude civil trials by including a pre-dispute arbitration clause.

How Can I Sue My Broker’s Firm?

The process of how to sue a brokerage firm follows a similar process to suing an individual broker, but there are a few key distinctions to be aware of:

  1. Identifying the responsible parties: In addition to the broker, you may also hold the brokerage firm accountable for their actions or negligence. Understanding the relationship between the broker and the firm is important in determining liability.
  2. Class-action lawsuits: In certain situations where multiple investors have been affected by the same misconduct or fraud, a class-action lawsuit may be appropriate. This allows affected parties to join forces and file a lawsuit and collectively sue the brokerage firm.
  3. Regulatory bodies and arbitration: Many brokerage firms require clients to sign agreements that include mandatory arbitration clauses, meaning disputes must be resolved through FINRA arbitration rather than in court. The Kurta team can help you understand the terms of your agreement and explore your options accordingly.

Overall, suing a broker and suing a brokerage firm share similarities in terms of gathering evidence, seeking legal counsel, and pursuing your case. However, the complexities of pursuing arbitration may require additional considerations due to the firm’s size, resources, and contractual agreements. Consulting with an experienced Kurta attorney specializing in securities law is crucial to ensuring your rights are protected.

Kurta Law FINRA Lawyers Can Help

Kurta Law’s FINRA arbitration lawyers have decades of experience recovering investor losses. Securities disputes are a highly specialized area of law—regular personal injury or commercial attorneys are not equipped to navigate FINRA arbitration. Contact Kurta Law today for a free case evaluation and take the first step toward recovering your lost funds.

Securities Lawyer Jonathan Kurta
Written by: Jonathan Kurta

Jonathan Kurta is an accomplished securities attorney and a founding partner at Kurta Law.