FINRA Rule 12206

Investors should regularly review their account statements and keep in contact with their investment professionals, both for their own peace of mind and in case of broker fraud or misconduct. Too often, investors will not realize their investment professional has placed them in overly risky investments until it’s too late.  

Time Limitation for Submission of a Claim

FINRA Rule 12206 imposes a six-year timeframe to submit a Statement of Claim. This means the investor has six years from the date the alleged misconduct occurred to file a complaint.

Statements of Claim initiate the process of FINRA arbitration, which is the process that most investors are required to use in order to recover money from their brokerage firm. If you are asking the question, “Can I sue my broker?” FINRA arbitration is a likely remedy because investors typically are required to pursue their claims through arbitration rather than suing in civil court. FINRA arbitration panels decide the outcome of investor disputes and their decisions are binding – it is extremely rare for a court to overturn an arbitration panel’s decision.

After six years, a claim may be dismissed solely on the grounds of the time elapsed, regardless of the claim’s merits. That said, if you believe your broker engaged in misconduct 6-plus years ago, do not give up on your case.

Can I Do Anything If My Claim is Over Six Years Old?

Yes, you may still be able to recover your lost funds.

Communications between a broker and a client can indicate ongoing fraud. It helps the investor’s case if they can demonstrate they were in regular contact with their investment professional. For instance, the broker may have purchased the overly risky investment over six years ago, but if the investor can show that they contacted their broker within the past six years and the broker indicated that their portfolio was performing well and that their investments were conservative, a securities attorney will argue that the fraud continued beyond the date of the fraudulent recommendation – thereby making the Claim eligible for arbitration.

Securities attorneys can be especially helpful in cases where firms move to dismiss based on the time since the alleged misconduct. It is essential to get these cases right the first time because investors are not allowed to re-file a claim once dismissed unless an arbitration panel specifically approves their re-file.

Firms may also preemptively dismiss an investor’s complaint based on the time that has elapsed, but investors can still pursue a case against their brokerage firm in case of a dismissal.

How Can I Avoid Unexpected Losses?

An investor’s best defense is a good offense.

• Regularly review your accounts and contact your investment advisers with questions about new investments.
• Make sure you understand how the investments in your account are supposed to work.
• Inform your broker if your risk tolerance or your financial situation has changed so that they can adjust your portfolio as necessary.

If you suspect an investment that resulted in unexpected losses was not appropriate for your risk tolerance, contact a securities lawyer today.

Financial Professionals and Regulators

Retail investors reasonably turn to their investment professionals for their expertise. Investors who work with a financial advisor pay a percentage of their assets under management (AUM), and that fee covers the investment advisor’s efforts to ensure that their customer’s portfolio generates revenue. The commissions and fees should ensure that the Registered Investment Adviser (RIA) or broker strives to do an excellent job. Securities attorneys routinely see cases where the investment adviser did not perform their duties and simply collected a fee, or in even more damaging cases, placed their investor’s portfolio in overly risky or illiquid investments.

An investor might discover too late that they cannot sell their shares, or that the shares have dramatically decreased in value. Unscrupulous financial professionals may select these products because of a conflict of interest – the investment product comes with either a significant commission for them or revenue-sharing for the brokerage firm. Financial incentives for investment professionals to recommend unsuitable products are surprisingly common.

Does It Matter What Type of Investment Professional I Have?

Many investment professionals are registered as both RIAs and brokers. There are a few differences between how these types of financial professionals are regulated. RIAs are fiduciaries, which means they have a legal obligation to recommend investments that are in their investor’s best interest. Brokers are not technically fiduciaries but are still required by regulators to only recommend investments that fit their customers’ risk tolerance and financial goals.

If you are not sure what type of financial professional you have, look them up on BrokerCheck or Investment Adviser Public Disclosure (IAPD) using their broker CRD number. Their online record will also reveal any investor disputes or regulatory actions.

How Do I Know If I Have a Case?

Contact a securities lawyer to determine if you have a case. Kurta Law offers free case evaluations and only collects a fee if our investment fraud attorneys win your case. Our attorneys are experts at FINRA arbitration and have a track record of defeating motions to dismiss based on time limits. Call (877) 600-0098 or email info@kurtalawfirm.com.