When The Consequences Outweigh the Risk

19 Monday Jan 2015

Posted by Barry M. Bordetsky, Esq. in Uncategorized

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Accountant, Arbitration, Broker-Dealer, Brokerage Firm, Churning, Compliance, Customer Complaint, FINRA, Investor Complaint, Mandatory Arbitration, Securities Fraud, Stockbroker, Suitability, Unauthorized Trading

It is not difficult, doing the right thing. There are rules regardless of what game in life you’re playing. Ignorance is no defense.

Unfortunately, just as the simplicities of the day, the “Pleases” and “Thank Yous” have fallen by the wayside, so too has the mindset “I will work hard and succeed.” Instead, today is about the quick fix, the shortcuts and unfortunately, the cheating and the breaking of the law.

For those who are taking the shortcuts, who are cheating others to get ahead, chances are you’re going to be caught, and it will cost you more than you gained. For those stockbrokers who are trying to cheat the system, by making the unauthorized trades in a client’s account, trading the account for the purpose of generating commissions or making an unsuitable recommendation to a client, there are consequences.

These consequences come in many forms, one of which is an arbitration claim. Stockbrokers are registered with the Financial Industry Regulatory Authority (“FINRA”). When a customer opens a trading account, there is an arbitration requirement that mandates any claims relating to the trading in the account to be filed before FINRA’s dispute resolution. Depending upon the dollar amount of the losses, FINRA will provide (at a fee) one or three arbitrators to hear the case. The filing fee for the complaining investor is relatively small and in most instances the attorney handling the cases take the matters on a contingency basis (attorney does not charge on an hourly rate, but takes a percentage of any money recovered).

Pursuant to FINRA rules, an investor has six years from the date of the trade to file a claim against the broker. Once an arbitration claim has been filed, FINRA has streamlined discovery, a process in which the parties exchange documents prior to the actual arbitration. Pursuant to FINRA rules, there are certain categories of documents deemed “presumptively discoverable” and must be produced if they exist. While the burden of proof is always on the person bringing the claim, FINRA appears to do all it can to assist the investors in bringing their claims to a hearing.

For the broker who is looking to make a quick dollar, say a $500 commission on an unauthorized trade, and then another, and then another, the legal fees associated with the defense of the claim can be up to ten times the original commission. And this does not account for any award assessed by the arbitrators, the FINRA hearing fees assessed by the arbitrators or the possibility of punitive (punishment) damages. An arbitration award is regularly converted into a judgment by the courts, and if not paid, the investor can go after your income or assets to collect on the judgment.

The stockbroker who thinks no one will notice the cheating is shortsighted. On a daily basis the trading is reviewed by a supervisor and often times a person in the firm’s compliance office. From the investor standpoint, not only does the investor see the trading from confirmations and account statements, but most likely the investor’s accountant is reviewing the trading for the tax purposes.

While it’s a lost art, hard work really does pay in the long run. The consequences simply are not worth the risks.

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA securities and employment arbitrations as well as litigants before state and federal courts. If you have questions about an issue you are involved with, please contact Barry at (800) 998-7705 or email barry@bordetskylaw.com.

Be Careful of “Your Own”

15 Thursday Jan 2015

Posted by Barry M. Bordetsky, Esq. in Uncategorized

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BrokerCheck, Churning, FINRA, Investment Responsibility, Investment Strategy, Securities Account Statements, Stockbroker, Suitability, Unauthorized Trading

It happens all the time. People socialize with those they are familiar with, those who speak the same language, those who go to the same church, mosque or temple, and those whose family members are from the same country. This familiarity often times creates business relationships that ordinarily would not exist. And there is nothing wrong with creating business relationships based upon these ties.

But be aware of the instance where you may be taken advantage of by “your own”. All too often one will give another within the community a trust that is not earned, but given with the thought: “this person would never take advantage of me.” When you hear phrases such as “If [fill in name of another community member] trusts me, you can trust me” or “I’ve known your [father/mother/uncle] for years, don’t worry, I’ll take care of you” take a moment. Stop. Particularly if this person is handling your investments and finances.

There are many phrases that refer to the dangers of working with those you socialize with, and while many are accurate, they are simply excuses as to what you must do at all times: stand up for yourself. Trust is a two-way street that must be earned. You should be comfortable enough with the relationship with your broker to ask a question, be satisfied with the answer, and hold the person accountable for his actions regardless of whether the person is an old family friend or someone you see weekly at church. If the comfort does not exist, bad news…there is no trust.

When this trust extends to your broker, you have a responsibility to yourself. Before investing your hard earned money, do some due diligence on the community member broker other than asking if “Uncle Eddie” thinks the broker is a nice guy. Stockbrokers are registered in a national registry that can be accessed through the site http://brokercheck.finra.org. This site will provide you access to important information such as the broker’s employer, the broker’s work history and any investor or regulatory complaints filed against the broker. You’ll get a better understanding of who the broker is other then when you’re not seeing him once a week at church or in a social setting.

Your broker has certain responsibilities as to what securities he recommends, the requirement to speak to you before every buy and sell, and to make sure the account is not being traded just for the purpose of generating commissions. However, make no mistake, it is your money the broker is investing and thus it is your responsibility to make sure you are comfortable with your broker and the manner in which he is handling your investments. Whether you are in the beginning stages of investing or some point thereafter, take the time to know what your broker is recommending, follow the investment portfolio on a monthly basis, and don’t be shy to push back where necessary. Simply relying upon the broker blindly because he is a member of a certain community is a surefire way to lose what you have worked hard to accumulate.

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA arbitrations as well as before state and federal courts. If you have questions regarding the process, please contact Barry Bordetsky by telephone at (800) 998-7705 or email barry@bordetskylaw.com. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

Time To Return the Favor of “The Talk” With Your Parents

12 Monday Jan 2015

Posted by Barry M. Bordetsky, Esq. in Uncategorized

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Accountant, Arbitrations, Discretionary, Elder Abuse, Elderly Investor, FINRA, Investments, Investor Fraud, Non-Discretionary, Recoup Investment Losses, Stockbroker Abuse, Suitability

As parents, there often are situations with children that necessitate a series of uncomfortable discussions, where questions must be asked and sensitive topics discussed. Regardless of what can be an awkward situation – – for both parents and the children, it is the responsibility of the parent to have the conversations. The phrase “I’m not here to be their friend”, is undoubtedly uttered on a daily, if not hourly or minute basis by parents.

But what happens when the proverbial shoe is on the other foot? What of the situation where it is the child, now an adult, that must discuss issues and raise questions to the parents; questions that are uncomfortable for everyone, but for the protection of the parents?

Nothing can make for a more uncomfortable conversation than a discussion about money with your parents. Unfortunately, like the “birds and bees” conversation you had decades ago, this is just as important. As our parents get older, there are times when their decision-making abilities are lessened, and the opportunity for someone to take advantage of them financially has increased.

It is not coincidental states have laws on the books that protect older investors. There unfortunately are people who will target such investors, knowing they can be worn down much more easily than others and will place their trust in strangers.

And now the uncomfortable conversation. Most likely, before having the “talk” with you, your parents prepared themselves. Just as they may have taken the time to bring the topic to you, you should do the same with them. Your parents may have spoken to your teachers or your friend’s parents; today there is nothing wrong with you having a conversation with your parent’s accountant to make sure at the very least the accountant is another set of eyes reviewing your parent’s investments.

When talking with your parents, start with basic conversation about where they have their money invested, but do so with an understanding of basic investing principals. Here are some basic terms and rules to help you out in the process.

First, Discretionary versus Non-discretionary account. A discretionary account permits the broker to buy and sell securities in your parent’s account without the requirement of speaking to them first. A non-discretionary account, which is the majority of securities accounts, requires the broker to speak to your parents before every single trade. Ask your parents about what their broker is recommending, and when your parents learn of the trade – before it is effectuated or when they receive their monthly statements?

The next point you should know about is suitability. A broker is required to comply with the Know Your Customer Rule. This rule requires the broker to know about your parent’s investment experience, net worth, liquid net worth, level of risk they are prepared to take in their investments and their primary investment goals. No trade may properly be recommended to your parents unless the broker takes each of the above points into consideration.

The strength and resolve of a parent is not being concerned about the awkwardness of a conversation, but rather protecting you. It may be time to return the favor.

Don’t Lie To Your Stock Broker – – Seems Simple, No?

06 Tuesday Jan 2015

Posted by Barry M. Bordetsky, Esq. in Uncategorized

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Arbitrator, Broker, Broker-Dealer, Brokerage Firm, FINRA, NAF, New Account Form, Stock Broker, Stock Market Losses, Suitability, Trading Objectives, Unsuitable Trade Recommendations

When opening a brokerage account with an investment firm (referred to as a broker-dealer) and its employee (the broker), there is one critical document that will act as the roadmap, the starting place, for a broker to know what is an appropriate trade recommendation to you. That document is called the new account form, or NAF. In many instances, a brokerage account is opened without ever meeting the broker.

Chances are when you had your first conversation with your broker, she asked you several questions. These questions ranged from gathering your contact information (legal name, address, telephone number, email address), your financial wherewithal (net worth, cash holdings, holdings in other securities accounts, value of property owned) to questions relating to the trading you are looking to conduct (your experience in the industry, your objectives for the account, the amount of risk you are willing to take in the account).

During this call the broker is most likely inserting the information into the computer that will generate the NAF. This document is then sent to you with a cover letter asking you to review the information contained on the document, and if the information is accurate, to sign confirming as much and return the NAF to the broker-dealer.

Do not discount the importance of this document.

The NAF is the document that will initially be utilized by the broker-dealer to supervise the broker and the trading in the account. This information is so important that in many instances, above the signature block, in bold and capitalized letters reads the following: I HAVE REVIEWED THE INFORMATION ABOVE AND CONFIRM UNDER PENALTIES OF PERJURY THE INFORMATION IS CORRECT. It is this document that will be primarily utilized by the broker to determine the recommendations to you. Similarly, this is the document used by an arbitrator or court to determine whether the recommendations made from your broker to you were unsuitable.

If you provide information on the NAF that is not accurate, you put yourself and more importantly your money at risk. Your broker will be making recommendations based upon false information you confirmed on the NAF to be true that do not accurately portray what you need, let alone what you want for your investments. An investor will have a difficult time seeking to recoup the loss of his purported life savings of $30,000 when the NAF indicates a seven figure net worth. Similarly, if the trading was aggressive and in line with an aggressive objective set forth in the NAF, the investor will have difficulties convincing an arbitrator or court “what I really meant was conservative, not aggressive.”

There is no reason to be embarrassed by your lack of experience in the market or your net worth; indeed, this is probably the very reason why you are using a broker instead of investing on your own. Give your broker every opportunity to work for you, not unknowingly against you. By providing your broker false information, you significantly diminish your chances of recovering losses from unsuitable trade recommendations.

The Starting Point Is Now

05 Monday Jan 2015

Posted by Barry M. Bordetsky, Esq. in Uncategorized

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Accountant, Arbitration, Discretionary Trading, FINRA, Investing Profits and Losses, Investments, Securities Accounts, Suitability, Unauthorized Trading, Waiver, Year End Statements

It’s the New Year, what is undeniably the greatest false start time of the year. People use the date as a starting point for something, whether it be starting a new hobby, starting a new business or simply reconnecting with old friends.

For investors, this is the time when they will be receiving a year-end statement from their broker-dealers. Often times this is the document provided to accountants from clients, to assist with the calculation of gains and losses for tax purposes. For accountants, like the diet that your clients were always wanting to start but never did, many times investing clients are overwhelmed with the investing process and did not pay attention to their investment accounts as closely as they should have during the year. Now is as good a time as any for accountants to address the issue with their clients.

Upon receipt of the clients’ trading information, accountants may want to call their clients and pose the following form of questions: Tell me what you wanted to do with your account? What did your broker tell you before the trades took place? How many trades do you think took place in the account?

The answers to these questions will be very telling, the start of an understanding of what took place in the account. By way of example, if the client states she wanted the account to conservatively sit and grow with no activity, but there were thirty trades over the year, there is an explanation that should be received as to why the trades took place. Similarly, if the trading was unsuitable, or not in line with the client’s objectives (i.e., risk level, financial wherewithal, experience), then a stop should be put to the improper trading. Importantly, the suitability analysis takes place at the time of the trades, not at the time of the complaint, thus necessitating an immediate review of the trading.

On that note, unless the account is discretionary, brokers are required to speak to investors and receive specific authorization for every trade, buys and sells. If this did not happen, then there is a problem. In terms of the number of trades that took place, there comes a time when the trading in the account only makes money for one person – – and that is the broker. However, if the investor sits for years silently, riding the profits of the trading in the account and then complains years after the fact, such complaint may very well be looked at suspiciously as only a belated attempt to utilize the broker-dealer as an insurance company for market losses. By sitting silently, the investor may very well be waiving the ability to move forward on a viable claim. An investor has six years to file an arbitration claim against a broker before the Financial Industry Regulatory Authority (“FINRA”).

The New Year is a great time for accountants to work with clients and provide them with the necessary nudge to protect their investments.

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Monthly Archives: January 2015

When The Consequences Outweigh the Risk

Be Careful of “Your Own”

Time To Return the Favor of “The Talk” With Your Parents

Don’t Lie To Your Stock Broker – – Seems Simple, No?

The Starting Point Is Now