Can You Recover Investment Losses?
There are a number of instances where investment losses are recoverable. These cases fall broadly under three categories: excessive trading, unsuitable investments and misrepresentations. These are discussed more fully under the topic "What Types of Investment Losses are Recoverable.
Most people are unaware that investment losses can be recovered. Many people write off losses as imprudent decisions, others feel helpless and foolish for having had their trust betrayed. While not all losses are recoverable, the important thing is to speak to an experienced practitioner as soon as you suspect wrongdoing. A careful analysis, including determining when the statutes of limitations are triggered is essential to evaluating any claim.
Where to Begin
The first step is going to the right forum. Many investors mistakenly believe the Securities and Exchange Commission will recover their losses for them. Others write letters to the Department of Corporations or the Secretary of State complaining about a broker or an investment loss. These organizations may initiate disciplinary or criminal action against wrongdoers, but they will not act as your advocate to recover your losses.
In order to recover your investment losses you must go to the proper forum. In most cases this means filing an arbitration claim with the National Association of Securities Dealers, the ("NASD") or one of the stock exchanges.
Most stock brokerage firms and their brokers are licensed with the NASD. The NASD requires its members to arbitrate customer disputes. Also, most brokerage firms require clients to sign arbitration agreements. Take a look at your client agreement. More than likely you will see an arbitration clause buried in the fine print at the end of the agreement. If your broker is not NASD licensed, you will generally have to take him to court to recover your losses.
Arbitration before the NASD or one of the stock exchanges is generally quicker and less expensive than litigation. It is also binding, which means no appeals, absent extenuating circumstances. Arbitration is also designed to be easier on the parties. This means no depositions, limited discovery practice and no court appearances. And, although not private, there are no transcripts or court reporters allowed by non-parties to the arbitration. This assures a level of privacy missing in litigation. Also, a new service provided by the NASD is mediation, which provides a less confrontational and even quicker means of dispute resolution than arbitration. One of the best things about arbitration is how quickly a dispute can be resolved. A typical case takes nine to twelve months from day of filing to final binding decision, significantly less time than most court cases.
If you do not have an arbitration agreement, and do not do business with an NASD member firm or individual, you must seek relief in the courts. This can take years and be quite expensive. If you decide to do business with an un-licensed individual, consider why he or she isn't NASD licensed. The NASD sets minimum competency requirements for members, and requires brokerage firms to maintain minimum capital behind their firm. Unlicensed individuals aren't held to the same standards. A word to the wise, exercise extreme caution when dealing with unlicensed individuals. Do your homework and contact the NASD to determine if your broker has a disciplinary history or any "disclosable information."