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Basis for FINRA claims

On Behalf of | May 28, 2020 | FINRA |

Pennsylvanians who have lost money in their brokerage accounts because of the actions or failures to act by their brokers may have grounds to pursue arbitrage through the Financial Industry Regulatory Authority, or FINRA. This agency regulates brokers and has a system of arbitration for investors who have lost money in certain situations.

Not all losses will provide the basis for arbitration. Generally, investors may file claims because of unsuitability, churning or negligence. Unsuitability refers to situations in which the broker either knew or should have known that the trading activity was not aligned with the investor’s goals. For example, if the broker invested the investor’s money in high-risk investments when the investor’s risk profile called for a conservative investment approach, a claim based on unsuitability might be appropriate.

Churning occurs when the broker makes an excessive number of trades during a period. This normally involves brokers who manage the investments on behalf of their customers and make commissions off each trade. The arbitration panel will divide the total transactions by the unleveraged account value to determine whether churning occurred. Negligence is harder to prove but can be shown when a manager has failed to properly supervise employees in the execution of trades or the selection of securities.

Simply losing money in an investment account is not sufficient to file a claim against a broker. However, when people believe that they suffered losses because of churning, unsuitability or negligence, they may have valid grounds to file a claim with FINRA. An experienced FINRA claims attorney may review the account documentation and trading history to determine whether a broker might have engaged in negligent or wrongful conduct with the investor’s investments. If the attorney believes that the claim has legal merits, he or she may assist the investor in filing a claim and presenting evidence before the arbitration panel.


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