Tag Archives: Broker-Dealer

When The Consequences Outweigh the Risk

19 Monday Jan 2015

Posted by in Uncategorized

≈ Leave a comment

Tags

, , , , , , , , , , , , ,

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.

You Agreed to What?

14 Friday Mar 2014

Posted by in Uncategorized

≈ Leave a comment

Tags

, , , , , , , , , , , , , , ,

If you were asked to sign an agreement containing the language below, you would think a joke was being played on you:

BY SIGNING BELOW YOU ARE GIVING YOUR LIFE

SAVINGS TO [FILL IN LEAST FAVORITE PERSON]

          X_______________________________________________

You would think the joke continued if above the signature block on the next page of the agreement contained the following:

BY SIGNING THIS AGREEMENT YOU ARE AGREEING TO:

          (i)          KL**AJSDF;

          (ii)         LK AKJKJADFE; and

          (iii)        KAJD-KJT

          X_______________________________________________

As much as these examples may bring a smile to your face because of the respective absurdity or incongruity of each, they, or more detailed examples of the same, can be found in any number of breach of contract cases.

With respect to the first, many people haphazardly review a document before signing it, not taking the time to read each and every paragraph or appreciate the significance and legal consequence of each term. What inevitably takes place, most likely at the signer’s deposition, is the signer testifies: “I didn’t think this was going to be enforced.”   The reason contracts have many paragraphs is because the party or parties intend each and every term and paragraph to be enforceable against the other.   By signing an agreement, the signatory is agreeing to each of the terms set forth in the document.

The second example comes into play more often than not in business transactions involving individuals.  The irony here is for each person that reads the above unintelligible example thinking “who would sign an agreement with language they don’t understand”, three others have just signed contracts containing language the signers did not read or simply do not understand.

Courts have made it very clear a party is responsible for and will be held accountable to the terms and corresponding obligations set forth in an agreement that is signed by the party.  Naiveté and ignorance are not proper or acceptable defenses.

Take the time to read documents put in front of you that require your signature. If you do not understand a term or reasoning for the inclusion of a paragraph, ask as many questions as you need to so you understand the content. If asking the questions you still do not feel comfortable with the answer or you still do not have an understanding as to how that term or paragraph will effect you, do not sign the agreement.

Otherwise, the last laugh may very well be at you.

 

If you have questions relating to this topic or other contractual matters, please contact The Law Offices of Barry M. Bordetsky by calling Barry M. Bordetsky at (800) 998-7705 or emailing at barry@bordetskylaw.com.

 

Where Are You Going: Arbitration or Court?

11 Tuesday Mar 2014

Posted by in Uncategorized

≈ Leave a comment

Tags

, , , , , , , , , , , , , ,

The charge goes out from the client: Sue Them!   Doing the due diligence before drafting a complaint the attorney discovers an agreement between the parties that permits the claim to be filed before an arbitration forum or court.

So where to go?  Choosing which forum to commence the proceeding can prove critical to the case.  The importance of the forum analysis cannot be overlooked.  Factors to be considered include the amount of time it will take to have the trier of fact (judge, jury or arbitrator) render a decision, the type of discovery that will take place in each forum and the costs associated with each forum.

Arbitration includes a generally expedited process where a claim is heard within a year or eighteen months after the filing of the claim.  Conversely, a court proceeding can last from one to three years. Generally no depositions or interrogatories are permitted in the arbitration process. In English, this means unlike a court proceeding a party in the arbitration process has no idea what the other party is going to say when called to the stand. Arbitration attorneys often call the process trial-by-ambush.

An advantage seen in the arbitration process, particularly for individuals as opposed to corporate parties, is the decreased cost associated with the diminished discovery permitted in the forum.   Discovery for an average commercial matter can be the most expensive part of a proceeding. Some, however, do not see the cost benefit of limited discovery.  If the potential claims are believed to be in the range of hundreds of thousands of dollars, then spending tens of thousands of dollars to ensure you acquire the relevant information to prove your case can be seen as money well spent.

Where a party chooses to litigate a case in court, the judge is randomly selected upon the filing of the complaint, where parties to an arbitration will select the arbitrators. This judge in the court case will determine issues ranging from discovery to substantive motions filed by the parties.  In most jurisdictions this will be the same judge that presides over the trial.  In the event a court renders a decision, whether on a pre-trial matter or on the decision from the trial, a party has a right to appeal the issue to an appellate court.

Like a judge, arbitrators rule on various motions including discovery motions such as motions to compel, motions to exclude as well as motions to dismiss certain causes of action.  These are heard prior to the arbitrators ruling on the merits of the case. Importantly, unlike a court proceeding, these decisions by the arbitrators are not immediately appealable.  Moreover, after arbitrators render their final decision, it is very difficult for a party to overturn, or vacate, the arbitration award.  Said differently, the appeal process in arbitrations is substantially more difficult than in court proceedings.

The decision of the forum is critical and should not be disregarded as inconsequential.  Prior to any filing, take the time to determine which forum is better for your matter.

The Law Offices of Barry M. Bordetsky represents parties before courts and arbitration forums. If you have any questions, please contact us by telephone (800) 998-7705 or by email at barry@bordetskylaw.com.

Broker-Dealers Must Act to Protect Themselves

07 Friday Mar 2014

Posted by in Uncategorized

≈ Leave a comment

Tags

, , , ,

Today broker-dealers are under constant fire.  The pressure comes from various sources: (i) the industry wanting to ensure investors they are being protected; (ii) FINRA enforcement investigations; and (iii) clients demanding positive returns regardless of the trading strategy they selected and approved.

Firms today must be aggressive, and such aggressiveness must begin on day one.  This day is not when a firm receives a customer complaint, but rather, the day the investor becomes a customer of the firm.

From the brokers, supervisors and back office personnel, everyone must be on the same page realizing that every ordinary act required in the opening and continuing of an account can prove to be crucial in defending the firms.  The simplicity of the acts is often overlooked.  For example, make sure account documentation is properly completed.  Client contact with the firm should be documented on a daily basis.  (Brokers often complain about the time it takes to scribble the notes.  Compare that time to working with defense counsel and spending three to five days at an arbitration hearing.  Suddenly the 30 seconds becomes very worthwhile.)  Also, supervision of brokers, such as documenting the comparison of investors’ trading to trading objectives, will provide a layer of protection if, and when, necessary.

The Law Offices of Barry M. Bordetsky works with brokers and broker-dealers when faced with both customer complaints and regulatory issues from FINRA.  If you have questions, please reach out to Barry M. Bordetsky at (800) 998-7705 or barry@bordetskylaw.com