Legal Steps Available for Securities Misconduct

In this turbulent time along Wall Street, where many investors have suffered historic losses to their retirement nest eggs, college savings and other investments, many questions are being raised as to the propriety of their broker’s conduct.  Instances of misrepresentations, abusive sales or trading practices like churning, unauthorized trading, unsuitable investments, mismanagement and in some cases outright fraud litter today’s headlines.  An investor who reasonably believes that he/she has been the victim of such dilatory conduct has the ability to seek recourse.

Many if not virtually all brokerage agreements contain a mandatory arbitration provision which directs the parties, in the event of a dispute, to the National Association of Securities Dealers, Inc.   (“NASD”).  The NASD, in conjunction with the Securities Exchange Commission (“SEC”), has established a comprehensive set of rules that governs this process and expeditious resolution of disputes is one of its goals. 

The process begins with the filing of a complaint with the NASD, which is then answered by the opposing party.  Following the filings, in most cases an arbitration panel is selected that consists of three arbitrators; although, claims ranging between $25,000.01 and $50,000.00 may proceed with a single arbitrator and claims of $25,000.00 or less are decided by a single arbitrator, generally on the pleadings.  Once the panel is selected, an initial Pre-hearing conference is timely scheduled and conducted via telephone.  At the conference the parties and the arbitrators organize the management of the case, set discovery cut-off dates, identify dispositive or other potential motions, schedule hearing dates, determine whether mediation is a viable option, and resolve any other preliminary issues.  By rule, hearing dates are to be scheduled for the earliest available time, consistent with the parties’ need to prepare adequately for the hearing and so as not to cause unreasonable delay.  The commencement of evidentiary hearings within nine months or less after the conference is the goal of the arbitrators.

NASD rules establish a broad, generally predetermined document production and exchange between the parties, which is to be completed within thirty days of the filing of the defending party’s answer.  Additional discovery requests are permitted; although, depositions are strongly discouraged absent the necessity to preserve testimony or to accommodate witnesses unable or unwilling to travel long distances for a hearing.

Each evidentiary hearing is recorded.  Each party is provided the opportunity to present an opening statement.  Testimony is then presented under oath and evidence produced in the normal fashion.  At the conclusion, each party may provide a closing argument.  The panel renders its Award within 30 days after the end of the hearing.  The Award itself is of public record; however, all other matters related to the arbitration, including the pleadings, motions, evidence and panel deliberations are confidential.

An arbitration panel’s ruling need only be by a majority vote; it need not be unanimous.  Most important, regardless of its size, the panel’s decision is final and binding on the parties. In other words, the decision is not appealable short of extraordinary circumstances. 

At any time during or after the evidentiary hearing, arbitrators are authorized to refer conduct of NASD member firms or individuals associated with those firms for possible disciplinary action after the conclusion of any case if the facts warrant, which could lead to censure or loss of license.

If you or someone you know has been the victim of securities misconduct, call CGA Law Firm to schedule an appointment with attorneys Rees Griffiths and Glenn J. Smith who are knowledgeable and ready to assist concerned and affected investors protect their rights.

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