Kestra Investment Services Losses: What Investors Need to Know
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Investment fraud can pass by undetected for months and have serious financial consequences, leaving investors lost and unsure of their next steps. Investors have made allegations of unauthorized trading, unsuitable investment recommendations, overconcentration, and other types of misconduct in Kestra Investment Services claims.
FINRA arbitration provides investors with an economical path to recovery. Investors who file claims with FINRA Dispute Resolution Services can typically expect resolution in 12 to 18 months.
A structured case evaluation by a Kurta investment fraud lawyer is the first step to building your case. The securities fraud attorneys at Kurta Law have represented investors nationwide in broker fraud claims involving a diverse range of investment products.
Kestra Investment Services brokers may also be registered as investment advisors with Kestra Advisory, and misconduct claims may involve violations of both FINRA Rules and SEC regulations.
If your losses indicate broker misconduct, reach out to Kurta Law today. We can provide a confidential, no-cost structured case review to evaluate your account for signs of misconduct.
What Is Kestra Investment Services Broker Fraud?
Fraud has a legal definition, but is often used informally to refer to violations of securities regulations. Kestra Investment Services broker fraud investigations seek to identify regulatory violations, such as:
- Misrepresentations or omissions of material fact
- Unsuitable investment recommendations
- Selling away
- Churning or excessive trading
- Unauthorized trading
- Failure to supervise under FINRA Rule 3110
Broker fraud cases may involve more than one type of misconduct. Ponzi schemes, for example, involve the misrepresentation of fraudulent and unsuitable investments. A thorough case evaluation by a stockbroker fraud lawyer can reveal patterns of suspicious conduct and help you build a case for arbitration.
Has Kestra Investment Services Been Accused of Broker Fraud?
In addition to years of investor allegations, Kestra Investment Services and Kestra Advisory have also been the subject of regulatory actions by FINRA and the SEC. Investor claims have been resolved through arbitration awards and settlements.
Investors should know, however, that past arbitrations and settlements involving other clients do not serve as evidence of firm liability. FINRA arbitrators evaluate Kestra Investment Services investment fraud claims independently.
What are Risky Investments?
Securities brokers frequently see cases of broker fraud involving the same investment products. Whether an investment is excessively risky for an investor will depend on the specifics of your account and financial goals, but some investments have limitations investors should know about.
Private placements are illiquid and high-risk because they are not publicly-traded and are not required to make the same disclosures as public investments. Private placements are typically only available to high net worth investors.
Hedge funds are private investments that are especially vulnerable to fraud by managers and brokers. They also come with high fees.
Structured products are often so complex, even some brokers fail to fully understand how they work. This complexity makes them difficult to evaluate and unsuitable for many investors.
Variable annuities can seem appealing at first, but often have unfavorable terms for most investors. Investors are exposed to market risk because premiums are invested, and various fees and surrender charges can make this an unsuitable investment for some clients.
Kestra Investment Services Churning Allegations
Churning, also known as excessive trading, violates the need for quantitative suitability established by FINRA Rule 2111. When a broker executes a high volume of trades, they generate excessive trading fees for their client. Churning also generates commissions for the broker.
Excessive trading is fundamentally unsuitable because it reduces investors’ profits while earning commissions for the broker.
Broker fraud investigators look for these red flags in churning cases:
- Low average holding period
- High turnover rate
- High cost-to-equity ratio
Turnover rate measures how many times new investments replace previous assets in the account. Cost-to-equity ratio considers how much an investor’s portfolio would need to grow to cover trading costs.
A stockbroker fraud lawyer can place the hard numbers of your case in the context of your investment goals to show the arbitration panel how excessive trading resulted in financial harm.
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Kestra Investment Services Selling Away Allegations
Private securities transactions violate FINRA Rule 3280 if the broker fails to seek firm approval beforehand. Brokers sell away when they sell firms not on the list of approved products offered by their firm.
Firm approval matters because unauthorized investments may be high-risk or even fraudulent. Brokers may sell away from their firm for several reasons:
- High commissions from certain investments
- Conflicts of interest
- Outside business activities (OBAs)
- Avoiding firm supervision
You can learn more about Kestra Investment Services’ selling away cases here.
In some cases of selling away, the firm may be found liable if it failed to take reasonable steps to detect and prevent broker misconduct. We’ll discuss failure to supervise in more detail below.
Kestra Investment Services Unauthorized Trading Claims
Unauthorized trading occurs when brokers exercise their trading discretion in non-discretionary accounts. It violates FINRA Rule 3260, which requires brokers to receive written authorization for trades before execution.
Common examples of unauthorized trading include:
- Placing trades without discussion
- Placing trades when the investor was unavailable
- Unapproved material changes in strategy
- Requesting authorization after placing trade
When evaluating unauthorized trading claims, investment fraud attorneys examine client records such as:
- Trade confirmations
- Discretionary agreements
- Strategy discussions
- Account opening documents
You may have an unauthorized trading claim even if your account is discretionary. FINRA Rule 3260 prohibits excessive trading in discretionary accounts. Investors who suspect misconduct in their broker’s trading should seek out a stockbroker fraud attorney for a case evaluation.
Unsuitable Recommendations & Kestra Investment Services Advisor Fraud
Unsuitable investment recommendations violate FINRA Rule 2111. This rule requires brokers to take into account the information in an investor’s profile when making recommendations.
An investor’s profile describes the following characteristics:
- Age
- Income
- Net worth
- Investment experience
- Risk tolerance
- Time horizon
- Liquidity needs
Some brokers take advantage of their clients’ trust and lack of investment experience by recommending complex investments like structured products or alternative investments to unsophisticated investors. Complex investments may be illiquid, come with high fees, and lead to significant losses.
To learn more about Kestra Investment Services’ unsuitable recommendations claims, read our article on suitability.
In some cases, Kestra Investment Services may be found liable for supervisory failures relating to unsuitable investment recommendations. We’ll discuss firm liability in broker fraud claims in a later section.
Claims of Kestra Investment Services Misrepresentations & Omissions
Claims of misrepresentation and omission appear in many broker fraud cases. FINRA Rule 2020 prohibits the use of manipulative or deceptive tactics to influence the purchase or sale of securities.
Brokers may misrepresent or omit material facts such as:
- Fees, markups and markdowns, and other expenses
- Tax implications
- Terms of insurance products, like surrender charges
- Risks and potential returns
Misrepresentation and omission can be fraudulent or negligent, and investors do not necessarily need to prove intent to cause harm.
Unethical brokers may mislead their clients as part of larger schemes, disguising unsuitable recommendations, unauthorized transactions, and excessive trading.
Overconcentration & “Kestra Investment Services Scam” Allegations
Failure to diversify can lead to significant losses when markets change. Portfolio overconcentration violates the suitability requirements of FINRA Rule 2111 due to the inherent risk.
Brokers may overconcentrate their clients in one asset, industry, sector, or geographic region. Investors may not realize their account has become overconcentrated unless they regularly review and rebalance their account.
Investors can support overconcentration claims with documentation such as:
- Strategy and diversification discussions
- Risk disclosures
- Profile information, e.g., risk tolerance and financial goals
- Metrics representing asset concentration
A crucial consideration in Kestra Investment Services broker fraud investigations is how your portfolio became concentrated. In some cases, concentration occurs when an investment performs better than predicted, growing to represent a significant portion of the client’s account.
Investors may characterize their losses as a “Kestra Investment Services scam,” but this isn’t a legal term. A Kurta stockbroker fraud lawyer can evaluate your portfolio for signs of unsuitable concentration and potential firm liability.
Failure to Supervise Under FINRA Rule 3110
FINRA Rule 3110 establishes the supervisory guidelines firms must follow to maintain compliance with securities regulations.
The three core requirements of FINRA Rule 3110 are:
- Development of supervisory systems
- Adequate enforcement of supervisory procedures
- Appointment of appropriately trained and experienced supervisors
Firms must establish Written Supervisory Procedures (WSPs) that inform supervisors on how to identify and respond to signs of broker fraud. Failure to establish systems of supervision or enforce them effectively can lead to firm liability in cases of broker fraud.
Negligent supervision violates FINRA Rule 3110, and investors do not need to prove intent to cause harm in Kestra Investment Services supervisory claims.
Typical firm supervisory procedures include:
- Monitoring trading in discretionary accounts
- Responding to customer complaints
- Reviewing internal and broker-investor communications
- Investigating signs of misconduct
In some cases, FINRA arbitrators may consider how firm supervisory failures affected other investor accounts. However, previous settlements and arbitrations involving allegations of failure to supervise do not indicate liability on the part of Kestra Investment Services, Kestra Advisory, or their representatives.
Why Does Broker Misconduct Occur?
Investors can be left reeling in the wake of broker fraud. Brokers may be tempted to engage in misconduct by several incentives:
- Commissions earned from trades
- Conflicts of interest
- Lack of firm supervision
- Negligence
- Complex products and lack of due diligence
Brokers may participate in outside business activities (OBAs) beyond the scope of their work at Kestra Investment Services that can introduce conflicts of interest in transactions. Similarly, they may also receive compensation as part of their relationships with third parties involved in securities transactions.
FINRA Arbitration and Kestra Investment Services Settlements
Typically, investors agree to pursue claims through FINRA arbitration when they sign brokerage account opening agreements. FINRA arbitration offers a more streamlined and economical process than civil court, and generally resolves claims in 12 to 18 months.
Here are some of the major differences between FINRA arbitration and civil court:
- Claims decided by neutral arbitration panel
- No jury
- Comparatively restricted discovery
- Very limited appeals
If your case progresses to hearing, arbitrators issue a written award, a legally binding and enforceable agreement between both parties.
Even with a simplified process, FINRA arbitration can feel daunting. This is where an investment fraud lawyer can help.
Stockbroker fraud attorneys assist investors in arbitration by:
- Gathering and organizing evidence to support your claim
- Facilitating document exchange with the firm
- Presenting your case during the hearing
- Cross-examining expert witnesses
- Negotiating settlement offers with the firm
If Kestra Investment Services makes a settlement offer, your attorney can evaluate how well it addresses your requested damages. It’s important for investors to remember that settlement offers are not admissions of firm liability.
What to Expect from Kestra Investment Services Arbitrations
The FINRA arbitration process is simpler and generally quicker than a civil proceeding. Most investors’ claims reach resolution in 12 to 18 months, but this will vary depending on the specifics of your claim.
Here’s what you can expect from the FINRA arbitration process:
- Filing Your Claim: Your case begins when you file a Statement of Claim. This will outline your allegations of misconduct, as well as relevant FINRA Rules and your requested damages.
- Firm Response: Your broker and Kestra Investment Services file an answer responding to your allegations and presenting their defense. You can typically expect an answer in about 45 days after you file your claim.
- Arbitrator Selection: Both parties select either one or three arbitrators from FINRA-provided lists. This process generally takes one or two months.
- Document Exchange: Also referred to as discovery, during this stage you and the firm will exchange key documents such as monthly account statements, broker communications, and firm supervisory materials. Presentation and interpretation of these materials are vital to supporting your case. This can take around six to nine months.
- Hearing and Decision: Your case will proceed to the hearing unless you settle it with the firm. The hearing is your chance to present evidence to the arbitration panel and make use of witness testimony. Following your hearing, arbitrators issue a binding and enforceable decision.
You may receive a settlement offer from Kestra Investment Services during the arbitration process. A securities fraud attorney can negotiate with the firm to achieve a settlement that best addresses your losses. However, settlement offers are not an indication of firm liability.
How FINRA Arbitrators Calculate Damages
When calculating awards, arbitrators may use a combination of damage models:
- Out-of-pocket losses
- Market-adjusted damages
- Margin interest
- Benchmark performance
- Excess commissions and fees
Market-adjusted damages consider how your investments would have performed without the influence of broker misconduct.
When investors trade on margin, they expose themselves to increased risk and must pay margin interest. Arbitrators may take these factors into account when calculating your damages.
Time Limits Under FINRA Rule 12206
FINRA Rule 12206 requires investors to file claims within six years of the beginning of misconduct. In some cases, it can be difficult to identify when misconduct began.
That’s why it’s crucial for investors to seek out a securities fraud attorney as soon as they suspect broker fraud. A structured case review can reveal patterns of misconduct and build the foundation for a broker fraud claim.
Frequently Asked Questions About Kestra Investment Services Broker Fraud
Click each question below to expand the answer.
Can I sue Kestra Investment Services for broker fraud?
Brokerage firms typically require investors to pursue their claims through FINRA arbitration, a quicker alternative to civil court. FINRA arbitration generally resolves claims in 12 to 18 months and results in a legally binding arbitration award.
What is the first step in evaluating a Kestra Investment Services broker fraud claim?
A structured case evaluation by an investment fraud attorney can reveal patterns of misconduct in your account documents, trading records, communications, and other materials. This will establish the foundation for your broker fraud claim.
What qualifies as Kestra Advisory advisor fraud?
Examples of advisor fraud include misrepresentations and omissions, unsuitable investment recommendations, and unauthorized trading.
What is churning?
Churning is the execution of an excessive number of transactions. It generates trading fees and broker commissions that can severely reduce an investor’s profits.
What is unauthorized trading?
Unauthorized trading occurs when a broker executes transactions outside the bounds of their client’s authorization. Some investors may have a case for unauthorized trading even in discretionary accounts.
What is failure to supervise?
Firms have supervisory obligations under FINRA Rule 3110. Failure to adequately supervise broker activity in client accounts can lead to firm liability in misconduct claims.
Does Kestra Investment Services have responsibility if a broker acted alone?
In some cases, Kestra Investment Services may be found liable in broker fraud claims if it failed to adequately respond to signs of misconduct.
What if I signed paperwork I didn’t fully understand?
You may still have a claim even with signed paperwork. Investment fraud attorneys can identify red flags of misconduct in your account documentation, marketing materials, and communications with your broker.
Can I bring a claim if my account was discretionary?
Potentially. For example, excessive trading in discretionary accounts is prohibited by FINRA Rule 3260.
What if Kestra Investment Services argues that market volatility caused the losses?
Market volatility is a common defense raised by firms. In arbitration, supporting documentation such as broker emails and texts, monthly account statements, and trade confirmations will be examined for signs of broker fraud.
Has Kestra Investment Services settled investor claims?
Some misconduct claims are resolved through settlements. You can review recent complaints on our blog /kestra-investment-services-complaints or settlements in the FINRA Award Database.
What is a Kestra Investment Services settlement?
A Kestra Investment Services settlement refers to the negotiated resolution to a broker misconduct claim.
How long does FINRA arbitration take?
Generally, investor claims reach resolution in 12 to 18 months in FINRA arbitration.
How long do I have to file a complaint?
Most investors must file complaints within six years of the start of misconduct. Investors should reach out to an investment fraud lawyer for a structured account review if they suspect misconduct.
What evidence strengthens an investment claim?
Investors can support their broker misconduct claims using account opening documents, trading records, investment prospectuses, and other materials.
What damages may be recovered from broker fraud?
Arbitration panels may award damages based on out-of-pocket damages and interest, among other factors. You may also be awarded additional damages in special circumstances.
Does calling something a Kestra Investment Services scam mean fraud occurred?
The term scam is often used in the context of investor losses. Evaluating if fraud occurred requires knowledge of broker standards of conduct and securities regulations.
Contact Kurta Law
If you believe your broker may have engaged in misconduct, the stockbroker fraud attorneys at Kurta Law can help. We have achieved settlements for clients in a wide variety of broker fraud claims, and have experience identifying patterns of misconduct in cases involving many investment products.
Contact our Kurta Law today for a confidential case evaluation and a discussion of your path to recovery with an experienced investment fraud lawyer.