Kaufmann Gildin & Robbins LLP

What to do if you suspect broker misconduct

2025-08-04T15:19:53Z

If you see something wrong with your investment account – unexpected losses, trades you did not authorize or risky products you didn't agree to – you need to act quickly. Start by contacting your broker and their branch manager. Ask them to explain the issue clearly. Request documentation. Some problems may result from honest mistakes. Others may signal serious misconduct. Knowing what steps to take – and when – helps you protect your rights and limit your losses. Here is what to do if you suspect broker misconduct.

What to do if they give you the runaround

If your broker brushes off your concerns, pay attention. If they give you vague answers, that is a red flag. Speak with an attorney who handles investment fraud or broker negligence. Many investors wait too long. They believe their broker will eventually fix the issue. But delay can cost you your rights.

New York's statute of limitations may cut off your claim

Time matters more than you think when it comes to financial misconduct. New York sets strict time limits for investment-related claims. The deadlines vary depending on the type of legal violation:

Fraud: six years from the fraud or two years from when you discovered it (whichever is later)
Breach of fiduciary duty: six years
Negligence or breach of contract: six years

Most broker disputes go through Financial Industry Regulatory Authority (FINRA) arbitration. That process requires you to file within six years of the event. If you miss that deadline, you may lose the right to recover. It does not matter how strong your claim is. You can then go to court, but statutes of limitation may result in dismissal.

Brokers must act in your best interest

Today, many brokers act as fiduciaries as a result of Regulation Best Interest. If you have a managed account from which brokers receive fees based on assets in the account (as opposed to commissions from trades), they must continue to monitor your account, They cannot just sell you a product and walk away. If they fail to disclose risks or keep you in a flawed strategy, they may have breached their fiduciary duty to you..

Do not wait to protect your rights

If something feels off, take it seriously. Contact your broker and his or her manager first. If they do not address the problem, reach out to a securities attorney right away. New York's deadlines are strict. Once they pass, you may lose your chance to act.

Are You a Victim of a Breach of Fiduciary Duty?

2025-03-18T19:55:50Z

Trusting another person or party with your financial well-being means that you are placing your stability and security in the hands of someone else. A fiduciary is a party that accepts the legal responsibility of managing the financial interests of the beneficiary. The fiduciary must act with a duty of care, good faith, loyalty and confidentiality. The fiduciary must also ensure that there is no conflict of interest that could compromise the interests of the beneficiary.

An example of the fiduciary duty is in the relationship between the investor and investment advisor. When you place your confidence in these parties, you assume that they will act in your interests and do everything possible to ensure that you are able to meet your goals. Before entering this type of relationship, you will benefit from having a clear understanding of the fiduciary owed to you and the rights of each party.

Duties owed to you by the beneficiary

The specific nature of the duties owed to you by the fiduciary depends on the specific nature of your relationship. For example, an investor will have different duties of care than those owed to clients by their attorneys. The following are examples of fiduciary duties:

Duty of loyalty -- This means that the fiduciary must act in the interests of the beneficiary at all times. They must avoid conflicts of interest and put their well-being first.
Duty of care -- The fiduciary must remain informed and knowledgeable in order to make the best possible decisions in the beneficiary’s interests.
Duty of confidentiality -- The fiduciary must be discreet, protecting the beneficiary’s sensitive or private information from others not involved in the relationship.
Duty to disclose -- The fiduciary must provide all pertinent information to the beneficiary regarding his or her finances, sensitive information and more.

If there is a breach in fiduciary duty, it is much more than an inconvenience for you. It could lead to damage to your financial interests and more. This is a serious problem, and you may benefit from seeking expert advice regarding how you can secure your interests, recoup your losses and hold the responsible parties accountable for the violation of your trust. Contact Kaufmann Gildin & Robbins LLP for a complimentary consultation.

The role of FINRA & the SEC roles in enforcing fiduciary duty

2024-11-08T15:43:52Z

As we move into 2025, investors can expect increased scrutiny of investment professionals' fiduciary duties. With the lines between brokers and investment advisers continuing to blur, it's essential to understand the roles of regulatory bodies like the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) in applying ethical and legal standards. These organizations play a crucial role in ensuring that financial professionals act in the best interests of their clients and maintain high ethical standards. Fiduciary duty implies the duty of care and loyalty, requiring professionals to provide suitable investment advice, manage conflicts of interest and disclose all material facts.

Investment advisers vs. brokers

There's a key difference between investment advisers and broker-dealers. Investment advisers are fiduciaries, while brokers, on the other hand, have traditionally not been considered fiduciaries. However, the line between these two roles has become less clear. Many brokers now offer services similar to investment advisers, leading to talks about creating a single fiduciary standard for both groups.

The crucial role of FINRA

FINRA plays a vital role in overseeing brokers and enforcing ethical standards. This self-regulatory organization sets rules and guidelines to ensure fair dealing and suitability of investment recommendations. Before making any recommendations, FINRA requires broker-dealers to understand certain aspects of their clients, such as:

Financial situations
Investment goals
Risk tolerance

They also order the disclosure of conflicts of interest and fair compensation practices. Although brokers traditionally operate under a suitability standard rather than a fiduciary one, FINRA's regulations aim to protect investors by promoting ethical conduct and transparency.

The SEC's oversight and enforcement

The Securities and Exchange Commission (SEC) is a federal regulatory body that oversees the securities industry, including investment advisers, investment companies, broker-dealers and other market participants. Under the Investment Advisers Act of 1940, the SEC enforces fiduciary duties on advisers. The SEC also imposes anti-fraud provisions for both advisers and broker-dealers, ensuring they adhere to ethical standards. Through its Division of Examinations, the SEC examines whether advisers comply with fiduciary obligations, focusing on their investment advice and conflict management. Next year, the division will prioritize adherence to fiduciary standards, effectiveness of compliance programs, and examinations of advisers to private funds. It will also focus on newly registered advisers and those who have yet to be examined. Investors should consider seeking legal advice to navigate the complexities of fiduciary duty and understand their rights. Legal professionals can provide valuable insights into the obligations of financial advisers and brokers, helping investors make informed decisions. They can also assist you if you suspect a breach of fiduciary duty or other misconduct. Understanding the role of FINRA and the SEC in enforcing fiduciary duty is crucial for investors. As the financial industry continues to evolve, it is vital to stay informed about the regulatory landscape and the obligations of investment professionals.

Recouping Losses from Margin Liquidations

2024-10-04T19:46:54Z

Your margin positions have been liquidated to meet a margin call despite the fact that you and the brokerage firm had established a pattern of meeting such calls extending to a longer period of time than was set forth in the margin agreement that you signed. Or your broker says she will wait until a certain time for you to wire funds to your account to prevent what’s called a “margin blowout,” but despite your meeting the deadline, the firm blows you out anyway. Do you have a case, even with the one-sided wording of all margin agreements? Perhaps. Under margin rules, a customer must, within a short time after purchase of a stock on margin, either pay for that security or put up adequate collateral in a margin account to secure a loan from the brokerage firm for that purchase. A brokerage firm’s house maintenance margin rules (after the initial federal margin requirements) require the customer to maintain a certain level of collateral equity in a margin account. Should the customer fail to put up sufficient capital or fail to provide additional capital when necessary, the brokerage firm has the right to sell as much of the customer’s securities as will bring that customer’s account into conformity with margin requirements. Customer losses incurred from margin sell-offs are inherently difficult to arbitrate because it was the brokerage’s firm’s funds that were loaned to the customer, brokerage firm margin agreements are comprehensive in the rights they give firms when margin deficiencies arise and arbitrators tend to be influenced by contract terms over the reality of the customer-broker relationships. The most common problem involving a margin account occurs when the broker did not explain to the customer, or the customer just did not understand, that the portfolio of stocks put up as collateral could be liquidated to meet margin calls. Even if the margin agreement was signed by the customer, he or she may have had no understanding of what the small print meant. In this scenario, a customer may bring an arbitration against the broker and the brokerage firm due to the unsuitability of margin for that customer. While, historically, these types of margin liquidation cases have been difficult for customers to win – due to the iron-clad nature of the margin agreement and regulatory structure that has provided brokerage firm wide leeway in liquidating margin accounts as they see fit – there are instances where a customer can recoup losses due to broker (and/or firm’s misconduct. For instance, if a person associated with the brokerage firm told the customer that, as long as additional funds were received by a certain time, the account would not be sold out. This is known as a “verbal trump” case, in which the employee’s representation could “trump” the written margin contract. Despite the fact that many, if not most, margin agreements specify that the terms of the contract cannot be changed by an associated person’s verbal statement, some arbitrators are receptive to the argument. Have you suffered losses due to forced liquidations in your margin account? If so, you will need experienced counsel who have faced large brokerage firms and are familiar with the stringent standards imposed by margin agreements. Contact Kaufmann Gildin & Robbins LLP for a complimentary consultation.

Fraudulent Transfer of Customer Funds

2024-10-04T19:40:09Z

You return from a well-deserved vacation, relaxed and in a great mood. But that changes dramatically when, a few days later, you happen to check your online brokerage account and discover that all of your securities have been sold and all of the proceeds have been wired to a bank account with your name on it. But you didn’t authorize the sales and you certainly didn’t open a bank account for the receipt of stolen funds. With a greater number of “bad actors” finding more sophisticated ways to hack into a customer’s brokerage account, firms are trying to thwart their efforts. Sometimes they fail, causing their customers to lose substantial amounts of their investment assets. While the brokerage firm itself was not the bad actor, it unwittingly facilitated the fraud despite having a responsibility to established and implement reasonable systems to protect its customers’ assets. FINRA sets the regulatory framework that brokerage firms must follow and has repeatedly directed them to protect their customers from digital threats. Most notably:

FINRA Regulatory Notice 21-18 (May 12, 2021) “Practices Firms Use to Protect Customers From Online Account Takeover Attempts”

FINRA Regulatory Notice 09-64 (Nov. 2009) “FINRA firms must have and enforce policies and procedures governing the withdrawal or transmittal of funds or assets from customer accounts, including instructions from an investment adviser or other third party purporting to act on behalf of the customer.”

FINRA Regulatory Notice 12-05 (Jan. 2012) “Firms must have adequate policies and procedures to review and monitor all disbursements it makes from customers’ accounts, including but not limited to third-party accounts, outside entities or an address other than the customer’s primary address.”

These FINRA Notices highlight the obligation that brokerage firms have to catch hackers before they wreak havoc on the accounts of unsuspecting customers. Firms are, indeed, the firewall of protection, but with smarter “bad actors” comes the need for smarter monitoring and detecting systems. When those systems fail due to “a crack in the system,” customers become victims and if it is found that the firms failed to fulfill their obligations and adhere to FINRA’s guidelines, customers can succeed in arbitration in getting their money returned If you have suffered losses as a result of an unauthorized or fraudulent transfer from your investment account, you need experienced counsel with knowledge of the regulatory requirements that should have protected your assets. Contact Kaufmann Gildin & Robbins LLP for a complimentary consultation.

Arbitrating a Registered Investment Advisor at the American Arbitration Association and JAMS

2024-10-04T19:29:25Z

Over the past years, brokers have shifted their association from brokerage firms regulated by FINRA to investment advisory firms that are not regulated by FINRA. Their business model has changed from commission-based transactions (after speaking with you to get your approval) to a fee-based formula (giving them discretionary authority without the need to speak with you). This means that your financial advisor is now your fiduciary and must always have your best interest in trading on a discretionary basis. The rise of Registered Investment Advisors (RIAs) has left alleged victims of their wrongdoing with a jurisdictional issue. Since RIAs are not affiliated with FINRA, they have no obligation to arbitrate at FINRA. Customer agreements with RIAs usually contain an arbitration clause setting the jurisdiction at the American Arbitration Association (AAA) or JAMS. Let’s start with this truth – Neither of these forums are customer-friendly since both are very expensive, dwarfing the cost of arbitrating at FINRA. However, from our experience and observations, the quality of AAA arbitrators is consistently higher than those at FINRA. Whereas JAMS arbitrators tend to be retired judges who are not familiar with the securities industry Starting an arbitration at AAA or JAMS is a similar process: filing a Demand for Arbitration (AAA) or Notice of the Claim (JAMS) and paying the requisite filing fee. One significant difference between the forums is that JAMS excludes investment-related disputes from its “Consumer Arbitration Minimum Standards.” More specifically: These [consumer arbitration] standards do not apply to the use of arbitration in resolving disputes arising from commercial transactions between a lender and commercial borrowers or a company and commercial customers, other financial services such as investment transactions, real estate transactions, or to matters involving underinsured motorists.” (highlighting added).^[1] This JAMS rule is in stark contrast to the AAA where, in the words of an AAA official: “Arbitration claims brought by individuals against RIAs in the AAA are generally given consumer treatment, without regard to any choice of rules clause.^[2] The AAA defines a consumer agreement as an agreement between an individual consumer and a business where the business has a standardized, systematic application of arbitration clauses with customers and where the terms and conditions of the purchase of standardized, consumable goods or services are non-negotiable or primarily non-negotiable in most or all of its terms, conditions, features, or choices. The product or service must be for personal or household use.” “However, the RIA can bring a motion to the arbitrator, once appointed, to move the case out of consumer treatment. The consequence of AAA applying its Consumer Arbitration Rules is meaningful in terms of the fees assessed, arbitrator appointment, discovery, and hearing length.” Regardless of the forum, an investor who believes she or he has been wronged by an RIA will need experienced, professional counsel to represent them. If you believe you have suffered financial losses as a result of improper practices by your RIA, contact Kaufmann Gildin & Robbins LLP for a complimentary consultation. [1] https://www.jamsadr.com/consumer-minimum-standards/ [2] AAA Consumer Arbitration Rules, R-1(a)(4)

Important questions before you choose to invest

2023-08-21T17:52:51Z

What you do with your financial resources is a personal decision based on unique objectives, which may include financial gain, purchase of property or growth of wealth through investments. Making the decision to invest comes with certain risks, but when done properly and with careful consideration, it can result in significant financial benefits. It is in your interests to know how to invest wisely and with your long-term interests in mind.

One way you can do this is by carefully vetting your potential investments before you move forward. You will benefit from doing your own due diligence before signing on the dotted line, ensuring that, while risky, it is a risk you can take with relative confidence. Imprudent investments can result in financial loss, legal complications and other issues. Before you commit your hard-earned money, you will benefit from asking questions and understanding the specifics of the investment.

Knowledge is power

When it comes to the money you have worked hard to earn, you have the right to be protective and proactive. Asking the following questions can help you understand the implications of the choices you are about to make and determine if it is a worthwhile risk. Some of these questions include:

Is the investment registered? When it is a registered investment, this means you will have access to important information about the management, finances and other details of the company.
Do you fully understand the investment? If you are putting your money on the line, it is in your interests that you fully understand the potential risks associated with that. Reading the prospectus and the disclosure statement can be helpful.
Is the seller licensed? It is critical to check the background of the person who is promoting the investment to determine if they are legitimate and knowledgeable.
What are the risks versus the rewards? In some cases, a higher-risk investment can carry the potential for significant rewards. No legitimate investment can promise you zero risk.

Your money is worth protecting. However, there are times when the best efforts of a New York investor are not enough to protect him or her from financial loss due to the actions of the broker, or even investment fraud. If you believe that your financial issues are the result of illegal practices on the part of someone who owes you a fiduciary duty, contact the attorneys at Kaufmann Gildin & Robbins LLP for a complimentary consultation.

Duties Owed to You by Your Investment Adviser

2023-07-20T16:06:53Z

There has been a substantial increase in the number of financial advisers foregoing registration with FINRA as a registered representative in favor of becoming an investment adviser – an RIA. Depending on the structure of the firm and the size of the assets under management, these RIAs are either regulated by the Securities and Exchange Commission or by state regulatory agencies, but not by FINRA. Aside from a different regulatory regime, RIAs owe unique duties to their clients beyond that of a FINRA registered representative. If you are working with an RIA, it is important to know the duties that are owed to you and your rights should your adviser violate them. First and foremost, unlike a registered representative, an RIA has an ongoing Fiduciary Duty to clients. “An investment adviser’s fiduciary duty under the Advisers Act comprises a Duty of Care and a Duty of Loyalty.”[1] The Duty of Care includes, among other things, to

Provide advice that is always in the best interest of the client;, even if the advice is to “hold” a security and not sell it;
Seek best execution of a client’s transactions where the adviser has the responsibility to select broker-dealers to execute client trades; and
Provide advice and monitoring over the course of the relationship.

The ongoing Duty of Loyalty requires that an adviser not subordinate its clients’ interests to its own. In other words, an investment adviser must not place its own financial interests ahead of its client’s interests. To meet their ongoing Duty of Loyalty, advisers must make full and fair disclosure to clients of all material facts relating to the advisory relationship.[2] After all, unlike most brokers, investment advisers are granted discretionary trading authority to make all investment decisions for clients. These duties play a large role in the standards by which courts and arbitrators hold the RIA in cases of alleged wrongdoing. If you’ve suffered financial losses as a result of RIA misconduct and believe you are entitled to be compensated for your loss, contact the attorneys at Kaufmann Gildin & Robbins LPP for a complimentary consultation. [1] See, Investment Advisers Act Release 2106, supra footnote 15. [2] Id.

What to Expect When Contacting an Attorney

2023-07-20T16:01:40Z

You’ve suffered financial losses as a result of misconduct from your financial advisor. Whether those losses were the result of an unsuitable recommendation, undisclosed risks or unauthorized trades, you need to consult an attorney to recoup your losses from the financial advisor and brokerage firm that wronged you. The journey to obtaining your lost money begins with a consultation or “intake” conversation. This discussion is a two-way street where you explain the circumstances that caused your damages. The attorney evaluates the claim(s) that can be brought against the broker. What follows are the questions you can expect to be asked. Knowing the answers to these questions will greatly aid in explaining your situation and giving your attorney the information needed to move your claim forward. But know this: All conversations and other communications with an attorney during the evaluation stage (and thereafter if a case is brought) are protected by the attorney-client privilege. That means you can talk about it with anyone, but the attorney cannot.

Did the wrongdoing take place within the past six years (FINRA’s time limitation period)?
Have you made this same complaint in another forum – court or a previous arbitration – that would bar you from starting another action, this time at FINRA?
Have you made a written complaint to the brokerage firm? If so, did you receive a response?
Have you prepared a narrative of events that can be reviewed and possibly used by the attorney to draft a Claim? Do you have notes relating to what occurred?
Are you an experienced or sophisticated investor? Do you have prior experience investing in the securities that caused your losses?
What documents do you have to support your claims against the financial advisor and brokerage firm, such as emails?
Has the attorney fully described her/his experience in financial industry disputes?
Are you prepared to spend the next year or so in active arbitration – document discovery, potential motion practice and hearing preparation – culminating in an arbitration hearing where you will testify and be cross- examined in the hopes and expectation of receiving just restitution?

This last question is crucial because while arbitration differs in many ways from the formality of court, the stresses of bringing an arbitration remain the same. During the initial consultation, an attorney should clearly explain the steps involved in arbitration, along with the responsibilities the attorney owes you and the obligations you, the client, have to the attorney. Now that you know what to expect, if you’ve been wronged by a financial advisor and believe you are entitled to restitution, contact the attorneys at Kaufmann Gildin & Robbins LPP for a complimentary consultation.

FINRA’s New Expungement Rules

2023-07-14T20:14:31Z

In 2023, FINRA’s significant changes to its expungement procedures will be implemented, making the permanent removal of a customer complaint or arbitration from a broker’s record much more difficult to obtain from a FINRA arbitration panel. While the three limited grounds for expungement remain the same – (1) the information to be expunged is factually impossible or clearly erroneous; (2) the person was not involved in the sale practice violations; or, (3) the allegations are false – without a firm grasp of the new requirements, the odds of brokers securing expungement will drop precipitously. This blog will provide a brief summary of these changes and the grounds for expungement. For more details, give us a call. The five major distinctions between the new procedures and a normal FINRA arbitration

Inapplicability of the six-year arbitrability rule;
Elimination of party-selection of arbitrators for certain cases;
Requirement of a unanimous decision;
Possibility of forfeiting a broker’s right to seek expungement; and,
Participation by a state securities regulator at certain expungement hearings.

The Only Rule 2080 Expungement Grounds of Customer Dispute Information

The claim, allegation, or information is factually impossible or clearly erroneous.FINRA’s arbitrator training states: “The ‘factually impossible or clearly erroneous’ standard has clear meaning to regulators and public investors. For example, if the evidence shows that the broker was not even employed by the securities firm during the relevant time period, the arbitrators could find that he or she was erroneously named in the arbitration claim, dismiss the claim against the individual and recommend expungement of any mention of the claim from the CRD record under this standard.” And FINRA’s online training module adds: “An example would be if a broker was not employed at the time of issue and was therefore erroneously named.”

The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. FINRA training provides: “The above standard would require an affirmative arbitral or judicial finding that the broker was not involved in any of the activities listed above. This list of activities is taken from Question 14 of Form U4, which specifies the types of customer complaints that registered persons must report. Therefore, if arbitrators make he required finding, no logical basis would exist for keeping the reported claim on an individual’s CRD record.” And FINRA’s online module adds: “These are Form U-4 Reportable Complaints – investment related sales practice violation, forgery, theft, misappropriate or conversion of funds.”[1]

The claim, allegation, or information is false.Here, arbitrators will assess the evidence, possibly make an affirmative finding that the claim, allegation, or information is false, and , if warranted, order expungement relief. This is the ground customer attorneys should have the greatest trouble with since it is diametrically opposed to the allegations of wrongdoing in Statements of Claim. FINRA training states: “This basis for expungement is premised on a finding that the claim, allegation or information given was false. Arbitrators should make such a finding only after considering the merits of the allegations against the broker or securities firm. For example, if the customer alleged that the broker made unauthorized trades and the broker provided evidence contrary to this claim, such as a document signed by the customer directing the trades, arbitrators could find that the claim or allegation was false.” FINRA’s online module states: “Consider the merits of the allegations and evidence contracting the claim.”

If you have a customer complaint or arbitration on your record that you believe should be expunged on the grounds listed above, you need to consult with an attorney with decades of experience in this area of the law. There is a distinct possibility that you will forfeit your right to seek such relief if you fail to follow the new procedures. Contact the attorneys at Kaufmann Gildin & Robbins LPP for a complimentary consultation. [1] https://www.finra.org/sites/default/files/form-u4.pdf