Edward Jones Investment Losses: What Investors Should Know
Table of Contents
- What Is Edward Jones Broker Fraud?
- Has Edward Jones Been Accused of Broker Fraud?
- Edward Jones Churning Claims
- Edward Jones Unauthorized Trading Allegations
- Claims of Edward Jones Misrepresentations
- Edward Jones Unsuitable Recommendation Claims
- Allegations of Overconcentration & Failure to Diversify
- Failure to Supervise & Edward Jones Advisor Fraud
- Red Flags for Broker Fraud
- “Edward Jones Scam” Allegations & FINRA Arbitration
- How FINRA Arbitration Works
- Strategic Considerations in FINRA Arbitration
- How Damages Are Calculated
- When Do Edward Jones Settlements Occur?
- Time Limits Under FINRA Rule 12206
- Frequently Asked Questions
- Contact Kurta Law
Investors may notice signs of churning, unauthorized trading, or unsuitable investment recommendations when they review their account statements, but may not know what to do next.
The Financial Industry Regulatory Authority (FINRA) provides investors with a path to resolution in the form of broker fraud arbitration. This process is provided to investors nationwide through FINRA Dispute Resolution Services. Securities fraud attorneys draw on their legal experience to help investors pursue FINRA arbitration and ensure a smooth process.
Investors across the country have filed claims of broker fraud against Edward Jones and its brokers. However, prior arbitrations and settlements do not constitute evidence of firm liability. A stockbroker fraud attorney can evaluate your account for signs of regulatory violations.
What Is Edward Jones Broker Fraud?
Like other large brokerage firms, Edward Jones has been named in thousands of broker fraud claims involving investments as common as stocks and as unique as structured products.
Investors have made allegations involving a wide range of misconduct:
- Misrepresentations or omissions
- Unsuitable investment recommendations
- Unauthorized trading
- Failures to supervise under FINRA Rule 3110
- Churning/excessive trading
When arbitrators evaluate claims of fraud, they consider whether the broker’s conduct violated securities regulations and caused financial harm.
If you believe your investment losses indicate broker fraud, reach out to Kurta Law today for a case evaluation.
Has Edward Jones Been Accused of Broker Fraud?
Investors across the country have filed fraud claims against Edward Jones and its brokers. It has also been the subject of regulatory actions by FINRA and the SEC.
Some investors’ claims have been resolved through FINRA arbitration, and others through settlement. However, previous arbitrations or settlements do not implicate the firm in other investors’ claims.
Edward Jones Churning Claims
Excessive trading is an unsuitable pattern of trading that violates FINRA Rule 2111. Also known as churning, these patterns of trading are unsuitable even when the investor ekes out profit.
In arbitration, supporting a churning claim relies on proving three key things:
- Broker control over the account
- Broker intent to generate commissions
- Unsuitability of trading activity given the investor’s profile
Arbitrators will look at the investor’s net worth, investment goals, and other characteristics from their profile that provide insight into their financial situation.
Besides an investor’s profile, broker fraud investigators will look at several metrics to evaluate excessive trading:
- Average holding period
- Turnover rate
- Cost-to-equity ratio
- Commission-to-account-value ratio
- Suitability for client’s goals
Arbitration panels consider these statistics, along with an investor’s financial information, to determine whether churning occurred. They will also scrutinize the firm’s supervision of their broker’s trading activity. We’ll discuss the role of firm supervision in broker fraud claims below.
Edward Jones Unauthorized Trading Allegations
Unauthorized trading violates FINRA Rule 3260, which requires brokers to receive investor approval before executing trades. Crucially, this rule requires that investors authorize trades in writing.
Some brokers try to get around the need for prior written authorization in several ways:
- Verbal trade confirmation
- Authorization requested after-the-fact
- Failing to get approval for all trades in a series
None of these forms of authorization are appropriate under FINRA Rule 3260.
In discretionary accounts, brokers can execute trades without the need for advance approval. However, their trades still need to meet the standards of suitability under FINRA Rule 2111. You may still have a claim for unauthorized trading if your account is discretionary.
Unauthorized trading can also look like:
- Executing trades during periods when the investor was unavailable
- Marking solicited trades as unsolicited
- Trading inconsistent with an agreed-upon strategy
- Churning in discretionary accounts
Edward Jones may also be liable in some cases of unauthorized trading if a broker fraud investigation finds that the firm failed to supervise its brokers. We’ll discuss firm liability and failure to supervise in a section below.
Claims of Edward Jones Misrepresentations
Misrepresentations and omissions of material fact violate FINRA Rule 2020. This misconduct may be negligent or fraudulent. If an omission is found to be unintentional, for example, a broker can still be held liable for losses resulting from this mistake.
Common violations of FINRA Rule 2020 include:
- Failing to disclose an investment’s fees or tax liability
- Underplaying the risks involved in an investment
- Misrepresenting the liquidity of an investment
- Claiming an investment is “safe” or offers guaranteed returns
Brokers may misrepresent or omit material facts related to investments to cover up their unsuitability or disguise other misconduct, like selling away or unauthorized trading.
Firms may also be held liable for misrepresentations or omissions if the firm failed to identify red flags in broker communications. You can view the latest Edward Jones Broker complaints here.
Edward Jones Unsuitable Recommendation Claims
Many Edward Jones broker fraud investigations involve allegations of unsuitable investment recommendations. These recommendations violate FINRA Rule 2111, also called the Suitability Rule.
Under FINRA Rule 2111, investment recommendations must be suitable for a client’s financial goals, given the information in their profile. An investor’s profile contains the following information:
- Age
- Income
- Net worth
- Investment experience
- Risk tolerance
- Time horizon
- Liquidity needs
Investments may be unsuitable for one investor but appropriate for another. Typically, securities fraud attorneys see patterns of unsuitable investments involving:
- Excessive risk for the client’s tolerance
- Lack of liquidity
- High fees
- Complex investments
- Unsuitable use of margin
Allegations involving suitability frequently also involve claims of misrepresentation, selling away, unauthorized trading, and other misconduct. Brokers may recommend unsuitable investments out of negligence or to generate commissions.
Examples of High-Risk Investments
While any investment could potentially be unsuitable for a given investor, some products tend to be too risky for most people:
- Structured products: These complex investments feature a bond and a derivative component. Their complicated structures make them best suited to sophisticated investors.
- Private placements: Because these investments aren’t traded publicly, they lack liquidity. They’re also subject to different disclosure requirements than public investments, making them harder to research.
- Variable annuities: These annuities are especially complicated and unsuitable for many investors for their lack of liquidity, fees, and surrender charges.
- Non-traded REITs: These real estate investment trusts are especially illiquid and risky compared to other REITs.
Allegations of Overconcentration & Failure to Diversify
Failure to diversify can expose an investor to an unnecessary degree of risk. A diversified portfolio will still generate returns even if one sector fails, but overconcentration can lead to significant losses.
Overconcentration violates the suitability requirements of FINRA Rule 2111. Examples of unsuitable overconcentration include:
- Sticking to one product, such as stocks
- Concentration in one sector, like oil and gas
- Investing in assets focused on one geographic region
Each of these examples can lead to massive losses for investors if the industry, region, or asset of their overconcentration experiences a downturn.
Diversification doesn’t fully remove the risk involved in investing, but it can limit the impact on your portfolio.
Overconcentration can be especially damaging if the investor is focused on illiquid investments, such as real estate investment trusts (REITs). These investments have limited markets, making it difficult to find a buyer.
Failure to Supervise & Edward Jones Advisor Fraud
FINRA Rule 3110 requires firms to establish systems of supervision to detect and respond to red flags. It empowers investors to pursue claims of failure to supervise in broker fraud cases.
Firms supervise their brokers in many ways, including by monitoring:
- Trading activity
- Broker commissions and trading fees
- Changes to investors’ risk tolerance, liquidity needs, and net worth
- Texts, emails, and other broker-investor communications
In arbitration, investors don’t need to prove that the firm intended to cause harm, only that the firm failed to meet the supervisory requirements of FINRA Rule 3110.
When arbitration panels evaluate claims of supervisory failures, they consider several questions:
- Was the firm’s supervisory system reasonably designed to prevent fraudulent misconduct?
- Did the firm follow its Written Supervisory Procedures (WSPs) when responding to alleged signs of misconduct?
- Did the firm respond appropriately to red flags?
Failures to supervise regularly intersect with claims of negligence, particularly if the firm had adequate supervisory standards but failed to enforce them. To learn more about firm supervision of liability in arbitration, see our Edward Jones failure to supervise page.
Red Flags for Broker Fraud
Investors who suspect their account has been affected by broker fraud may pick up on several red flags:
- Unusual trading
- Poor communication
- Overconcentration
- Inconsistent investment performance
- Withdrawal restrictions
Difficulties withdrawing funds and vague explanations from brokers frequently tip off investors that something isn’t right.
If you suspect broker fraud, you can ask yourself the following questions:
- Are my losses consistent with my trading strategy and goals?
- What disclosures has my broker provided?
- Is my account sufficiently diversified?
- Do I know what the expenses on my account statements represent?
You have the right to a full explanation about the costs of your investments, their structure, and your broker’s trading strategy. It’s important to retain documentation like texts and emails from your broker so an investment fraud attorney can establish a clear paper trail to support your case.
At a time when there was no hope, there was Jonathan Kurta and his team. Our financial advisor had committed fraud and disappeared with much of our money. From the initial contact to the final outcome of our case and settlement, Kurta Law was by our side. Integrity, honesty, kindness, patience, passion, respect, brilliant minds and an endless work ethic.these are the people of Kurta Law. They gave us hope and an outcome that resulted in a settlement. Thank you.- Katie Boos
“Edward Jones Scam” Allegations & FINRA Arbitration
Investors who file broker fraud claims may refer to their losses as an “Edward Jones scam.” These claims can be resolved through FINRA arbitration, a streamlined alternative to civil court. Account opening agreements frequently require disputes to be resolved through FINRA arbitration.
FINRA arbitration differs from civil court in several key ways:
- Generally provides resolution in 12-18 months
- One or three neutral arbitrators decide cases
- No jury
- Comparatively limited discovery
- Very limited appeals
Similar to civil court, FINRA arbitration results in a binding legal agreement called an award. For more information, read our page on the Edward Jones FINRA arbitration process.
How FINRA Arbitration Works
Claims taken through FINRA arbitration typically take 12 to 18 months to resolve. The complexity of your case will influence the length of the arbitration, but each case follows the same basic process:
- Claim Filing: Your Statement of Claim will describe your allegations and the FINRA Rules they violate, as well as your requested damages.
- Firm Response: Edward Jones and your broker will file an Answer addressing your allegations.
- Arbitrator Selection: The two sides will select one or three arbitrators from lists provided by FINRA.
- Document Exchange: The two parties exchange documents such as supervisory materials, account statements, and communication records.
- Hearing and Decision: If Edward Jones does not offer a settlement, your case goes to hearing. This is your opportunity to present evidence and witness testimony to the panel. A written arbitration award is issued following the hearing.
An investment fraud attorney can represent your interests throughout the arbitration process and navigate the complexities of interacting with the other party.
If you suspect broker misconduct played a role in your losses, contact Kurta Law today for a confidential case evaluation.
Strategic Considerations in FINRA Arbitration
When preparing for FINRA arbitration, investors should keep several strategic considerations in mind. An investment fraud lawyer can help build your case and present your evidence effectively in arbitration.
Establishing a Narrative of Misconduct
Proving your broker fraud claim requires establishing connections between your losses and your broker’s conduct. For example, FINRA arbitration panels frequently consider the following information to determine the cause of an investor’s losses:
- Suitability of recommendations
- Risk disclosures
- Trading activity and commissions
- Trade authorizations
This is why a thorough account evaluation is vital to creating the foundation for your case. The more documentation you can provide to back up your claim, the stronger your narrative will be.
Consistency of Evidence
Consistent evidence provides strong support for a broker misconduct claim. During the discovery phase, both parties will share documents and take time to examine them. The firm will have a different take on the evidence, so consistency is key.
Supporting your documentation with witness testimony will also strengthen your case. Knowledgeable witnesses can provide crucial analysis to show arbitrators how the evidence reveals broker misconduct.
Signs of Failure to Supervise
Arbitrators will consider the firm’s role in the alleged misconduct. The firm may be held liable for broker fraud under FINRA Rule 3110 if it failed to recognize red flags of broker fraud or respond to them effectively.
Common Defenses in Arbitration
Firms frequently make the following defenses against claims of misconduct, claiming that the investor:
- Understood and accepted certain risks
- Made their own investment mistakes
- Was sufficiently experienced or sophisticated
- Provided authorization for certain trades
The arbitration panel will consider these defenses in the context of the evidence.
How Damages Are Calculated
When determining your arbitration award, the panel may use a combination of several models to calculate damages:
- Out-of-pocket losses
- Market-adjusted damages
- Excess commissions and trading fees
- Margin interest
Market-adjusted damages take into account how your portfolio would have performed without the influence of misconduct. Similarly, arbitrators may consider the financial harm of trading fees and commissions generated in Edward Jones churning cases.
Because use of margin can extend investors beyond their risk tolerance, margin interest may also factor into your damages.
When Do Edward Jones Settlements Occur?
Edward Jones may make a settlement offer anywhere in the arbitration process, but offers are more likely to come during and after discovery. As the two parties exchange documents, the firm gets a sense of the strength of your case.
Edward Jones may use the following considerations when making settlement offers:
- Potential failures to supervise under FINRA Rule 3110
- Witness credibility and expertise
- Damage analysis in the Statement of Claim
- Strength of the investor’s supporting evidence
It’s important to remember that a settlement offer is not an admission of wrongdoing or liability.
A Kurta investment fraud lawyer can evaluate Edward Jones settlement offers and negotiate for a settlement that better addresses your losses.
Time Limits Under FINRA Rule 12206
FINRA Rule 12206 requires most investors to file their claims within six years of the occurrence of alleged misconduct.
That means it’s crucial for investors to reach out to one of our stockbroker fraud attorneys as soon as they suspect investment fraud.
Frequently Asked Questions About Edward Jones Broker Fraud
Can I sue Edward Jones for broker fraud?
Most account opening agreements require investors to pursue claims through FINRA arbitration rather than civil court. FINRA arbitration is a quicker alternative to a civil proceeding that also results in a legally binding agreement.
What is the first step in evaluating an Edward Jones broker fraud claim?
Your case evaluation begins with a structured review of your account by a stockbroker fraud lawyer. They will review broker communications, trade confirmations, and your investment profile for signs of fraud.
What qualifies as Edward Jones advisor fraud?
Edward Jones advisor fraud claims may involve allegations of churning, unsuitable investment recommendations, unauthorized trading, or other misconduct.
What is churning?
Edward Jones churning claims arise from patterns of excessive trading activity that generate broker commissions and high trading fees.
What is unauthorized trading?
Edward Jones unauthorized trading allegations refer to trading activity that extends beyond what investors authorize.
What is failure to supervise?
Failure to supervise occurs when a firm fails to adequately establish or enforce systems of supervision over its brokers.
Does Edward Jones have responsibility if a broker acted alone?
In some cases, the firm may be liable for a broker’s actions if the firm failed to respond to red flags of broker misconduct.
What if I signed paperwork I didn’t fully understand?
You may still have a case even if you signed paperwork. Arbitrators consider the full context in claims of broker fraud, including your risk tolerance, trading activity, and other facts that can illuminate signs of misconduct.
Can I bring a claim if my account was discretionary?
Possibly. Unauthorized and unsuitable trading violate FINRA Rules even in discretionary accounts.
What if Edward Jones argues that market volatility caused the losses?
Firms often use this defense, but arbitrators will look at the full extent of your evidence to determine the cause of your losses.
Has Edward Jones settled investor claims?
Some claims are resolved by Edward Jones settlements. You can review recent complaints on our blog Edward Jones complaints or settlements in the FINRA Award Database.
What is an Edward Jones settlement?
An Edward Jones settlement refers to the negotiated resolution of a broker fraud claim.
How long does FINRA arbitration take?
FINRA arbitration generally provides resolution faster than civil court, typically ending in 12-18 months.
How long do I have to file a complaint?
Under FINRA Rule 12206, most investors must file their claim within six years from the start of the alleged broker misconduct. It’s best to seek out a stockbroker fraud lawyer as soon as possible to evaluate your case.
What evidence strengthens an investment claim?
A broker fraud claim can be strengthened with consistent documentation and the use of expert witnesses who can provide detailed analysis of the facts. Monthly account statements, investment prospectuses, and risk disclosures are often used to reinforce fraud claims.
What damages may be recovered from broker fraud?
Investors may be awarded damages based on out-of-pocket losses, interest, and circumstantial damages.
Does calling something an Edward Jones scam mean fraud occurred?
The phrase “Edward Jones scam” is frequently used to describe broker misconduct, but it’s not a legal term. Evaluating fraud claims requires knowledge of FINRA Rules and federal securities regulations.
Contact Kurta Law
At Kurta Law, our experienced investment fraud attorneys use our combined years of experience in securities fraud litigation to advocate for our clients in arbitration. We have helped investors achieve recovery in cases involving a wide range of investment products.
Contact Kurta Law today for a no-cost, confidential case evaluation and discussion of your next steps toward recovery.