What Does a Securities Lawyer Do?

Securities lawyers help investors recover investment losses due to misconduct on behalf of unscrupulous brokers and brokerage firms. A “security” is any investment, including stocks, bonds, mutual funds, exchange-traded funds, and options. Investors who indicated a modest risk tolerance should not have to suffer significant losses.

Unexpected losses may indicate that a firm has been negligent and failed to conduct its due diligence when researching an investment product. Unexpected losses may also mean that a broker may have disregarded their firm’s policies and recommended an unsuitable security to secure an especially large commission. In any case, a securities lawyer can help evaluate your case, from the brokerage firm agreement to the types of securities in your account.

Why Hire a Securities Lawyer?

Securities lawyers are familiar with a long list of familiar suspects – risky investments that often benefit brokers more than they do investors.  All of the following investments are often named in unsuitable investment disputes. Unsuitable investments violate FINRA Rule 2111, which requires that brokers only recommend investments that suit their investor’s needs.

Securities lawyers have experience helping their clients navigate recovery after losing money with the following investments:

Variable Annuities are insurance products that feature complicated add-ons, like death benefits, that are prone to lapse. Their usefulness to the investor depends on the performance of the underlying investments. Investor disputes involving variable annuities often feature allegations that the broker either did not fully explain or misrepresented a variable annuity’s benefits. 

Structured Products use a bond and a derivative product. Derivatives are complex products like futures and swaps – products that take a gamble on an asset’s future performance.

Unit Investment Trusts are comprised of a portfolio of stocks and bonds. They come with maturity dates, at which point an investor may rollover their investment into a new UIT. Investors should be wary of advice to rollover a UIT before its maturity date, which incurs unnecessary costs for investors and huge commissions for brokers.

Non-Traded REITs are REITs that do not trade on the public stock exchange. These alternative investments are extremely illiquid and come with high fees.

Non-Traditional ETFs may be leveraged, inverse, or both. Leveraged NT-ETFs use borrowed money and inverse NT-ETFs aim to make money from a decrease in stock prices.

Junk Bonds are bonds that have a low credit rating or are not rated by a credit rating agency.

Business Development Companies invest in small to medium-sized companies that need funds. Investors hope that the company will turn its finances around and eventually produce a healthy return.

Brokered CDs are nothing like certificates of deposit you would buy from a bank. They are, however, often sold by a securities firm that is affiliated with a bank, which can confuse investors. These securities often take years to mature and may be callable (i.e., cancellable) by the issuer.

These are just a few examples. If you’re not sure if an investment product was right for you, consulting with a securities lawyer may be the quickest way to figure out if a product had too much risk to suit your needs.

What Kinds of Services Does a Securities Lawyer Provide?

In order to recover losses, investors typically have to go through the FINRA arbitration process instead of filing for civil litigation. FINRA arbitration has different rules than civil litigation.

Securities lawyers are experts in the niche area of law that governs the sale of securities. The Securities Act of 1933 prevents the use of deception and manipulation in the sale of securities. A regulator called the Financial Industry Regulatory Authority (FINRA) regulates brokerage firms and brokers. FINRA also establishes rules designed to ensure brokers comply with existing securities laws. 

Here is a short list of the rules that Kurta Law securities lawyers regularly cite when they file for FINRA arbitration:

Unsuitable Investments: FINRA Rule 2111

Investments are supposed to suit an investor’s profile. Financial goals, age, risk tolerance, tax status, and other investments – these are all aspects of an investor’s profile that a broker must consider before recommending an investment. Investors should not accept major losses without any warning of the risks involved.

Misrepresentation: FINRA Rule 2020

Brokers must not misrepresent or omit information about an investment. For instance, if a securities transaction comes with special tax implications, that is information the broker is obligated to provide. Similarly, brokers cannot provide unrealistic projections for an investment’s future performance.

Discretionary Accounts and Unauthorized Trading: FINRA Rule 3260

In a discretionary account, brokers are allowed to execute securities transactions per their discretion. Before an account can be discretionary, it must be accepted as discretionary in writing, both by the investor and the firm. Without these conditions being met, verbal authorization from the investor is not enough.

Outside Business or “Selling Away”: FINRA Rule 3270

Firms approve each product that brokers recommend to clients. If a broker recommends an investment outside this pre-approved catalog, they may have ulterior motives. They may want an investor to purchase a security that they have a stake in or invest in a product that comes with a large commission for the broker. Investors should always contact a securities lawyer if they suspect selling away and be wary of broker communications from a channel outside of the firm’s pre-approved platform.

Improper Use of Customer’s Securities: FINRA Rule 2150

Certain brokers have faced allegations of outright stealing or broker embezzlement, more accurately referred to as misappropriation in the securities industry. FINRA Rule 2150 prohibits improper use of client funds.

Failure to Supervise: FINRA Rule 3110

Brokerage firms are required to supervise their brokers, including their retail communications and communications with clients. If you worked with a broker who violated FINRA rules and regulations, the brokerage firm may also be held liable for your losses.

How Can I Find a Securities Lawyer?

Our securities lawyers are here to answer any other questions you may have about what securities lawyers do. Contact info@kurtalawfirm.com or (877) 600-0098. Kurta Law also offers free case evaluations for investors who believe they may be the victims of fraud or misconduct.