Investment Fraud and Broker Misconduct Claims

An investor's remedies when a broker, adviser or issuer misrepresented an investment, churned an account, recommended unsuitable products or stole, and why most broker claims go to FINRA arbitration rather than court.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of Securities law firms.

What it means

Investors lose money honestly all the time, and a loss alone is not a claim. A claim exists when the loss was caused by misconduct: a material misstatement or omission in selling a security (securities fraud), recommendations that were unsuitable or not in the customer's interest given their age, goals and finances, excessive trading to generate commissions (churning), unauthorized trades, concentration in one risky position, selling investments the firm never approved, outright theft or a Ponzi scheme, or a failure by the brokerage firm to supervise its representative. Federal securities law gives a private right of action for fraud in connection with the purchase or sale of a security, and the SEC's Regulation BI requires a broker making a recommendation to a retail customer to act in the customer's interest without placing the firm's own interest first; registered investment advisers owe a fiduciary duty under the Advisers Act. State securities ("blue sky") laws add their own remedies, often with easier proof.

Where the claim is heard depends on who the defendant is. Nearly every brokerage account agreement contains an arbitration clause, and the Financial Industry Regulatory Authority's rules require a member firm to arbitrate a customer's claim on the customer's demand, so claims against brokers and brokerage firms go to FINRA arbitration: a panel of one or three arbitrators, limited discovery, a hearing, and an award that is final with very narrow grounds for a court to vacate it. FINRA also has an eligibility rule that bars claims more than a set number of years after the events, separate from any statute of limitations. Claims against issuers, investment advisers who are not FINRA members, accountants or others go to court, often as class actions under the Private Securities Litigation Reform Act's procedures. A regulator's enforcement action, whether by the SEC, FINRA or a state securities administrator, may produce restitution but is not a substitute for the investor's own claim.

Investors should check a broker's or firm's registration and disciplinary history on FINRA BrokerCheck and the SEC's Investment Adviser Public Disclosure site before investing and before bringing a claim; a representative's prior complaints are often evidence of a supervision failure. Account statements, trade confirmations, new-account forms stating the investor's objectives and risk tolerance, and all written communications with the representative are the core evidence, and the firm is required to keep most of them. Where the representative has stolen or the firm has failed, the Securities Investor Protection Corporation protects customers against missing cash and securities up to its limits, but not against bad investments.

Where this comes from

When people hire a lawyer for this

Securities lawyers who represent investors usually review a case without charge and take it on a contingency fee; bring your account statements, the account opening documents and any emails or texts with the broker. Act quickly, because FINRA's eligibility rule and the statutes of limitations run from the transactions or from when you should have discovered the problem, and losses that look like market declines are often only recognized as misconduct years later. Do not rely on the firm's own compliance department to make you whole, and be wary of "recovery" services that solicit fraud victims for an upfront fee, which is itself a common second fraud. For small losses, FINRA's simplified arbitration procedure allows an investor to proceed without a lawyer on documents alone.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

Find Securities law firms in your state

Choose your state to see Securities law firms in the city where we list the most; your city may be under “other cities”, A to Z. A state marked “Consumer Rights” has no Securities listing yet and opens the broader page.

• Alabama (Birmingham)
  +1 other city

  • Montgomery
• Alaska (Anchorage, Consumer Rights)
• Arizona (Chandler)
  +6 other cities

  • Gilbert
  • Glendale
  • Mesa
  • Phoenix
  • Scottsdale
  • Tucson
• Arkansas (Little Rock, Consumer Rights)
• California (Chula Vista)
  +19 other cities

  • Anaheim
  • Bakersfield
  • Fontana
  • Fremont
  • Fresno
  • Irvine
  • Long Beach
  • Los Angeles
  • Riverside
  • San Bernardino
  • San Diego
  • Santa Ana
  • and 7 more with fewer listed firms
• Colorado (Aurora)
  +2 other cities

  • Colorado Springs
  • Denver
• Connecticut (Bridgeport)
• Delaware (Wilmington, Consumer Rights)
• District of Columbia (Washington)
• Florida (Hialeah)
  +5 other cities

  • Jacksonville
  • Miami
  • Orlando
  • St Petersburg
  • Tampa
• Georgia (Atlanta)
• Hawaii (Honolulu)
• Idaho (Boise)
• Illinois (Chicago)
• Indiana (Fort Wayne)
  +1 other city

  • Indianapolis
• Iowa (Des Moines)
• Kansas (Wichita, Consumer Rights)
• Kentucky (Lexington)
  +1 other city

  • Louisville
• Louisiana (Baton Rouge)
  +2 other cities

  • New Orleans
  • Shreveport
• Maine (Portland, Consumer Rights)
• Maryland (Baltimore)
• Massachusetts (Boston)
• Michigan (Detroit)
• Minnesota (Minneapolis)
  +1 other city

  • Saint Paul
• Mississippi (Jackson, Consumer Rights)
• Missouri (Kansas City)
  +1 other city

  • St. Louis
• Montana (Billings, Consumer Rights)
• Nebraska (Lincoln)
  +1 other city

  • Omaha
• Nevada (Henderson)
  +2 other cities

  • Las Vegas
  • North Las Vegas
• New Hampshire (Manchester, Consumer Rights)
• New Jersey (Jersey City)
  +1 other city

  • Newark
• New Mexico (Albuquerque, Consumer Rights)
• New York (New York City)
  +2 other cities

  • Buffalo
  • Rochester
• North Carolina (Charlotte)
  +5 other cities

  • Durham
  • Fayetteville
  • Greensboro
  • Raleigh
  • Winston-Salem
• North Dakota (Fargo, Consumer Rights)
• Ohio (Cincinnati)
  +3 other cities

  • Cleveland
  • Columbus
  • Toledo
• Oklahoma (Oklahoma City)
  +1 other city

  • Tulsa
• Oregon (Portland)
• Pennsylvania (Philadelphia)
  +1 other city

  • Pittsburgh
• Rhode Island (Providence)
• South Carolina (Columbia)
• South Dakota (Sioux Falls)
• Tennessee (Memphis)
  +1 other city

  • Nashville
• Texas (Austin)
  +10 other cities

  • Arlington
  • Corpus Christi
  • Dallas
  • Fort Worth
  • Garland
  • Houston
  • Irving
  • Laredo
  • Plano
  • San Antonio
• Utah (Salt Lake City)
• Vermont (Burlington, Consumer Rights)
• Virginia (Chesapeake)
  +3 other cities

  • Norfolk
  • Richmond
  • Virginia Beach
• Washington (Seattle)
  +1 other city

  • Tacoma
• West Virginia (Charleston)
• Wisconsin (Madison)
  +1 other city

  • Milwaukee
• Wyoming (Cheyenne, Consumer Rights)

Related terms

Other entries in the same area of law, each written from the same primary sources.

• Automatic Renewal and Negative Option SubscriptionsThe federal and state rules on subscriptions that keep charging until you cancel - what a seller must disclose and obtain before enrolling you, the cancellation mechanism it must offer, and where the law currently stands.
• Billing Error Dispute (Credit Card Chargeback)The federal procedure for disputing a charge on a credit card statement - a written process with deadlines on both sides that the card issuer must follow, not a courtesy it may offer.
• Car Dealer FraudThe common deceptive practices in buying a car - spot delivery, hidden damage, odometer rollback, packed add-ons and financing markups - and the federal and state laws that give buyers claims against the dealer and the lender.
• Class ActionOne lawsuit brought by named plaintiffs on behalf of a larger group with the same injury.
• Cooling-Off Rule (Canceling a Door-to-Door Sale)The federal right to cancel certain sales made at your home or away from the seller's regular place of business, the notice the seller must give you, and the many sales it does not reach.
• Credit Freeze and Fraud AlertTwo free federal tools for stopping identity thieves from opening accounts in your name - one that locks your credit file, one that warns lenders to check who they are dealing with.
• Credit Report DisputeThe federal process for forcing a credit bureau and the company that reported an item to investigate information you say is wrong.
• Data Breach Notification RightsWhat a business must tell you when your personal information is exposed, which laws require it, what the notice must say, and what a person whose data was breached can actually claim.
• Debt Validation Notice and Disputing a DebtThe written notice a debt collector must send when it first contacts you, what it must contain, and the dispute right it opens - during which the collector must stop until it verifies the debt.
• Fair Debt Collection (Collector Conduct Rules)Federal limits on what a third-party debt collector may say and do - including a written demand that stops contact, and a 30-day right to make them verify the debt.
• Gift Card and Prepaid Card RulesThe federal limits on gift card expiration and fees, the state laws that go further, and the separate protections for reloadable prepaid cards used like bank accounts.
• Identity Theft Recovery RightsThe federal rights a victim of identity theft can use to remove fraudulent accounts from a credit report, obtain the records of what the thief did, stop the debts being collected, and limit liability for the charges.
• Implied Warranty and the Magnuson-Moss ActThe promises the law reads into a sale whether or not anyone wrote them down, and the federal act that limits how a seller can take them away.
• Legal Malpractice (Suing Your Lawyer)A claim that a lawyer's negligence or breach of duty cost the client money, which usually requires proving the client would have done better in the original matter.
• Mandatory Arbitration ClauseA term in a consumer contract that sends any dispute to a private arbitrator instead of a court, usually alone rather than as part of a class - and federal law makes most of them enforceable.
• Professional Malpractice (Accountants, Architects, Engineers, Brokers and Other Professionals)A claim that a licensed professional other than a doctor or lawyer fell below the standard of care of their profession and caused a financial or physical loss.
• Right of Rescission (Home Loans)A federal right to cancel certain loans secured by your home during a short window after signing - and for much longer if the lender failed to give the required disclosures.
• Robocalls and the TCPAThe federal law that restricts automated and prerecorded calls and texts to your phone, gives you a Do Not Call right, and lets you sue for a fixed amount per illegal call.
• Time-Barred DebtA debt so old that the statute of limitations bars a lawsuit to collect it - what a collector may and may not do about it, how a payment can revive it, and why the credit-reporting clock is a different clock.
• Unauthorized Debit Card and Electronic Transfers (Regulation E)The federal rules that limit a consumer's loss from an unauthorized debit card, ATM, ACH or payment-app transfer, require the bank to investigate an error, and decide who bears a loss the consumer was tricked into sending themselves.
• Unfair and Deceptive Practices (UDAP)The consumer-protection laws, one federal and one in every state, that make it illegal for a business to mislead you or treat you unfairly - and the state versions are the ones a consumer can actually sue under.
• Vehicle RepossessionA lender's right to take back a financed car after default without going to court - subject to rules about how it is taken, how it is sold, and what you can still be made to pay afterwards.
• Wage GarnishmentA legal order requiring an employer to withhold part of someone's pay and send it to a creditor.

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