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What Does a Securities Attorney Do?

Aug 5, 2022 Articles

Securities attorneys represent clients who have lost money investing with a brokerage firm, stock broker, or financial advisor. Investors lose money due to fraud or other misconduct. Many investors will discover that they are required to arbitrate their dispute because the brokerage firm’s “New Account Form” contained a pre-dispute arbitration agreement. These agreements preclude filing a civil suit and require investors to use the dispute resolution services that FINRA provides–also known as FINRA arbitration.

FINRA arbitration is the mechanism by which investors file and litigate complaints against their brokers in order to recover their losses. It is meant to be a quicker, more cost-effective, and less complicated means of recovering lost funds than a civil trial. 

Securities attorneys help investors with the following tasks:

  1. Determining whether there is a viable claim
  2. Filing claims with FINRA against the brokerage firm
  3. Navigating the discovery process
  4. Negotiating settlements with the brokerage firm
  5. If a settlement is not possible, securities attorneys will present your case as effectively as possible during your hearing.

How Do I Know if I Have a Viable Case?

At the outset, investors are not always aware of the specific wrongdoing in their accounts. Brokerage account statements and other documents are often confusing and many investors do not realize that their investments were unsuitable until they realize losses in their accounts. In response, brokerage firms often simply deny any wrongdoing on behalf of their stock broker, in hopes that the investor will drop the dispute. Securities lawyers can see through this tactic, and Kurta Law has secured settlements and awards for many investors who have had their disputes denied by a firm.

Your securities lawyer can help you determine if your brokerage firm failed to supervise your broker and whether you suffered damages as a result. Brokerage firms must approve the products that their brokers recommend, and securities lawyers can evaluate if the firm failed to perform its due diligence before approving a product for customers.

FINRA Arbitrators are Not on Your Side

Unfortunately, brokerage firms and Investment Advisors have considerable sway with Congress and the Securities and Exchange Commission. Brokerage firms use their leverage to enforce mandatory arbitration of disputes.

FINRA arbitration is a small world and inside knowledge of the players on the field gives investors a distinct advantage. On average, FINRA administers approximately 2,000 cases per year – a relatively small number. Experienced securities attorneys may already be familiar with your broker and brokerage firm’s prior history of fraud allegations. This type of background is extremely helpful for successful claims.

What is a Security?

Before we can answer “What is securities law?” we should first define a security. A “security” is an investment contract that gives the owner the right to profits from a common enterprise, with profits that come solely from the efforts of others. It is determined based on the Howey Test.

Securities comprise stocks, bonds, and alternative investments.

Common types of alternative investments include the following:

These types of investments are only suited to wealthy investors who can handle a high level of risk.

What is Securities Law?

Securities law is an area of law that is meant to protect investors from manipulation and fraud. This field of law features rules and regulations that make it possible for investors to trust that they can rely on a free and open market.

The Federal Securities Act

The Securities Act of 1933—also known as The Federal Securities Act—requires that issuers – the companies that sell shares of stock – make information about their company public. This allows the public to assess an investment for themselves.

The Securities Act of 1934 established the Securities and Exchange Commission as the regulatory body that would oversee securities. Their stated goal is to enforce “free and fair markets.”

When Should Investors Hire a Securities Lawyer?

Investors may need to retain a securities lawyer if they suspect their broker or brokerage firm violated a securities law.

  • Securities lawyers are familiar with the risky financial products on the market, and they can help you evaluate if your investment was suitable.
  • Your securities attorney will also know which securities law or FINRA regulation your broker potentially violated.

What Do Brokers and Advisers Owe Their Clients

The investment advisers who recommend stocks and the stock brokers who place trades are obligated to consider their clients’ financial goals and risk tolerance. Investors take note: Stock brokers are often dually registered as both stock brokers and Registered Investment Advisers (RIAs).

Since RIAs and stock brokers generate commissions and fees from their client’s investments, there is often a conflict of interest when trading securities.

  • RIAs typically charge a fee that is a percentage of their clients’ assets under management (AUM). This fee is typically 1% to 2% of the total assets.
  • Stockbrokers usually charge a small fee per transaction.

RIAs and stock brokers have different regulators and follow different requirements. However, financial professionals are often registered as both.

  • RIAs owe their investor’s a fiduciary duty to put their interests ahead of their own.
  • Stock brokers are not fiduciaries, but they are still required to adhere to FINRA Rule 2111. FINRA Rule 2111 states that brokers must consider factors like their client’s age, financial situation, tax status, risk tolerance, and their liquidity needs – i.e., how much cash they may need to withdraw from their investing accounts.

What Does a Corporate Securities Lawyer Do?

Certain securities lawyers also represent financial institutions. Kurta Law only represents investors. The firm has successfully represented thousands of investors throughout the country. Jonathan Kurta has experience representing financial institutions and is familiar with the tactics they use to avoid repaying their investors.

How Do Securities Lawyers Get Paid?

Securities lawyers typically do not charge an hourly fee. Instead, most clients pay a percentage of their settlement or award. Attorneys at Kurta Law never collect a fee unless they win their case.