Securities Arbitration & Litigation

Darlene Pasieczny’s knowledge in the field of securities litigation and FINRA arbitration gives her the edge to help her clients recover investment losses. Darlene is licensed in Oregon and Washington. However, her FINRA arbitration practice enables her to represent investors nationwide. This involves claims of broker or investment adviser misconduct or defective securities products. FINRA arbitration is the main forum for resolution of legal disputes between investors and brokers. It is a specialized forum with its own procedural rules – and Darlene knows how to navigate them.

FINRA Securities Arbitration

What is FINRA arbitration? FINRA stands for the Financial Industry Regulatory Authority, a self-regulatory organization that licenses and regulates stockbrokers and brokerage firms. When investment losses occur in a stock brokerage account, claims for investment losses usually have to be filed in a FINRA arbitration proceeding rather than court. That is because virtually every brokerage firm’s forms that you must sign when you open an investment account have a provision stating that you agree to go to arbitration rather than court if there is ever a dispute.

Registered Investment Adviser Claims

Increasingly, financial professionals are choosing to open registered investment adviser firms (“RIA” firms) instead of a brokerage firm, and be licensed as an investment adviser representative (“IARs”) instead of as a stockbroker.  RIAs and IARs cannot sell securities.  Rather, they provide investment advice about securities, and are subject to the Investment Advisers Act of 1940.  The SEC, not FINRA, is in charge of RIAs and IARs.  And the states are in charge of RIAs with less than $100 million assets under management.

There are many important distinctions between FINRA-registered brokers and SEC or state-registered IARs.  Including the fact that the forum for dispute resolution may, depending on the contractual agreements between the investor customer and the firm, be in another arbitration forum or even a court of law.

RIAs and IARs have fiduciary duties to their customers under the 1940 Act, and applicable state law.  Stockbrokers and brokerage firms have duties that may be less or different from fiduciary duties – that is a complex area of federal and state law.  An experienced securities attorney will understand these differences.

Investment Loss Recovery

All securities carry risk – but some securities are far riskier than others. A well-designed portfolio takes into account an investor’s objectives, risk tolerance, goals, age, and other personal information to appropriately manage risk of investment loss for that investor.

Absent extraordinary circumstances, if a conservative to moderate investor loses, say, 20% of a portfolio designed by a financial professional, the chances are very good that professional has some liability for recoverable losses. Likewise, if a particular investment was described to you as a “good investment,” or “safe and secure” and later becomes worthless or illiquid, chances are good that someone misrepresented that investment to you.

We evaluate how much money was lost, why it was lost, and whether the law supports a claim for recovery. If the losses are significant, and were caused by an adviser’s mistake or an investment principal’s misrepresentations, we can help seek available remedies.

That may include state Blue Sky securities claims for rescission – our clients offer to give back the investment in exchange for a return of their purchase price, plus statutory interest and attorney fees.  It often includes state common law claims for negligence, breach of fiduciary duty, and the firm’s negligent failure to supervise. It may include claims to disgorge commissions generated from “churning” an account, the broker making frequent sales and purchases for the purpose of generating more commissions for themselves.  It may include claims for lost opportunity – what the portfolio should have earned had it not been for the mismanagement – under a “well-managed portfolio” or market-adjusted model of damages. All of these and more are recognized under the law as valid claims and forms of recoverable damages. But each case is fact-specific, and one type of claim or damages theory may be the most appropriate.  We make these evaluations and arguments.

The following are our Ten Red Flags that investors should be aware of: danger signs that point to potential mismanagement of an account or investment fraud by a broker or investment adviser.

These red flags are useful as you evaluate your own investments, review the investments of an elderly relative, or if you’ve decided to change brokers.

Ten Red Flags

1. Your broker or investment adviser didn’t discuss your risk tolerance with you, told you “not to worry” about that category when filling out account paperwork, or you somehow ended up with a higher risk portfolio than you wanted.  Any reported swing in portfolio value of more than 10% up or down, when you’re a conservative or moderate investor, is a red flag.
2. You discover that you cannot liquidate investments that you thought you could sell. Or you discover an unexpected high fee or surrender charge for selling.
3. Big portions of your portfolio are used to purchase “alternative investments” – things like interests in limited partnerships (LPs), non-traded REITs, private placements, promissory notes, and interests in limited liability companies (LLCs). Many of these investments come with a prospectus, require you to complete special forms just to purchase them, carry high risk for investors, and pay big commissions to the selling brokers.
4. You are encouraged to purchase investments where you must formally certify that you are an “accredited investor”.  These investments also often carry a high degree of risk and are only designed for people who can afford to lose all of their investment.
5. You are advised to purchase investments the same day that they are offered to you, without giving you a chance to think about it, especially when your advisor says that the opportunity won’t last long. If you feel any sense of rush, surprise, or pressure to make any investment decision, that’s a red flag.
6. Your account statements stop arriving, your broker or investment adviser is suddenly hard to reach, or they discourage you from discussing your investments with anyone else at their firm.
7. You have investments that do not appear on the brokerage company’s account statements that you receive.  Or the statements otherwise look irregular, show frequent transactions that you don’t understand, or don’t add up.
8. Your broker or investment adviser promises returns that seem too good to be true. In today’s market, there are no legitimate, safe and secure investments that can guarantee an 8% annual return year after year.  Any promised return that seems like an unusually good deal deserves closer scrutiny.  Risky, unsecured promissory note scams may be particularly targeted towards elderly investors as “fixed income” investments.
9. You are offered an investment that you do not understand.  Or your portfolio contains investments that, on closer examination, are not plausible or understandable.
10. You discover that your broker or investment adviser has multiple disclosures when you look them up on FINRA’s BrokerCheck system or the SEC’s IAPD system (search by name at BrockerCheck). Disclosures may include prior client complaints, bankruptcy, termination from prior employers, regulatory investigations and sanctions, criminal charges, on-going or resolved client disputes.  These are all red flags about prior conduct that you probably want to know about before entrusting that person with your money.

Ponzi Clawback

Increasingly so since the ugly collapse of Bernard Madoff’s extensive Ponzi scheme in 2008, receivers and trustees of bankrupt Ponzi operations are attempting to recover billions of dollars from innocent investors. Those investors were fortunate enough to have gotten their money back before the fraudulent operation collapsed.

These are called clawback claims. We represent innocent investors nationwide – those who were unaware that they had invested in a Ponzi Scheme – when they are named as defendants in clawback claims.

Financial Professionals

We sometimes represent brokers and financial advisers in claims brought by or against their broker-dealers or RIA firms. We also represent advisers who have lost clients because, through no fault of their own, they recommended investments based on faulty information from their supervising firm.  In these situations, FINRA panels have awarded brokers the value of the lost business. We have successfully represented brokers in promissory note cases, discrimination and harassment, raiding-related claims, compensation issues, and U-5 reporting issues.

We do not represent industry defendants in claims made against them by a customer.

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