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Frequently Asked Questions about Securities Arbitration and Litigation

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Frequently Asked Questions about Securities Arbitration and Litigation

Q: What are securities?

A: The term "securities" covers a number of different instruments including stocks, mutual funds, bonds, notes, debentures, investment contracts, treasury stocks and transferable shares.

Q: What is securities fraud?

A: Securities fraud is a scheme or artifice to defraud a person in connection with the sale of securities. It is also known as investment fraud, and it is the intentional deception of investors that results in financial gain. Companies can commit securities fraud by disseminating false and/or misleading information to the public. A broker-dealer can also commit securities fraud by breaching his or her duty to disclose relevant information to clients and failing to look out for the clients' best interests.

Q: Who can be liable for securities fraud?

A: The following individuals and entities may be liable for securities fraud: broker-dealers (misleading clients or advising based on inside information); financial advisors or analysts (purposefully offering poor advice or inside information or withholding information); companies (hiding or distorting information); and private investors (acting on inside information).

Q: What is a class action?

A: A class action is a lawsuit that is brought on behalf of a group of individuals who have suffered similar injuries. In a securities class action, the plaintiffs may be investors who lost money because of claimed violations of the securities laws.

Q: What are the benefits of a class action?

A:A class action allows many people, who may have sustained relatively small damages, to join together to sue a company where an individual suit may not have made economic sense. A securities class action provides small shareholders with the ability to litigate on an equal playing field with the large, well-funded corporations who have allegedly violated the securities laws and have the resources to defend lawsuits directed at those violations.

Q: How long does securities litigation take?

A: It depends. Securities litigation can be complex and the discovery period, motions for summary judgment and trial could drag on for several years before a resolution is reached. However, if the defendant and plaintiff reach a settlement during the time after the plaintiff files a complaint, but before trial, the case may be resolved within several months to a year.

Q: What is a derivative action?

A: A derivative action is a lawsuit brought by the shareholders of a company against the directors, officers and management of the company for some fraud, mismanagement, self-dealing or breach of fiduciary duty. In a derivative suit, the shareholders are essentially suing on behalf of the corporation because the officers and directors have failed to act in the corporations's best interests.

Q: What defenses are available to a defendant in a securities case?

A: In addition to specific defenses outlined in the federal securities laws, a number of common law defenses may be available to the defendant. These include due diligence, contributory negligence, assumption of risk, intervening cause, good faith reliance on counsel and estoppel/waiver/ratification/laches, which apply where the plaintiff has failed to object to the transaction in a timely manner. Another potential defense is known as in pari delicto, which applies where the plaintiff has at least equal responsibility for the violation and preclusion of the suit would not significantly interfere with effective enforcement of the securities laws

Q: What is arbitration?

A: Arbitration is an alternative dispute resolution (ADR) process in which one to three arbitrators, rather than a judge or jury, decide the merits of a case. In an arbitration, the parties are typically represented by counsel and present evidence through testimony and documents like in a court proceeding. Today, most disputes between brokerage firms and customers are resolved through arbitration.

Q: What types of damages are available in securities cases?

A: Generally, a securities plaintiff can seek monetary damages for the financial loss sustained because of the defendant's misconduct. A plaintiff may also seek equitable relief such as rescission or an injunction prohibiting the defendant from engaging in future fraudulent conduct.

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