If you’re thinking about investing your money with a stock broker, it’s important to know what you could be up against if things go wrong. One potential worst-case scenario is losing all of your money due to negligence or fraud on the part of your broker. If this happens, you may be able to take legal action by filing for arbitration through the Financial Industry Regulatory Authority (FINRA). In this post, we’ll explore what Finra arbitration is and how it can help you get justice if your stock broker has lost your hard-earned cash.
You’ve invested your hard-earned money with a stock broker, and you trust that they will do their best to make you money.
Investing your hard-earned money with a stock broker isn’t always easy. You have to trust that this person is going to do what’s best for you, and it can be a very nerve-wracking experience. However, FINRA provides arbitration services as a way for investors to resolve any disputes they have with the stock brokers.
But what happens if your broker makes some bad decisions and loses your money instead of making you money?
Working with a stockbroker can be a great way to navigate the financial markets, but sometimes things don’t go as planned. What happens if your broker makes some bad decisions and loses your money instead of making you money? There is FINRA Arbitration, a dispute resolution route for investors who believe their stockbrokers have committed fraud or other unsuitable practices. It’s a process in which an impartial, third-party panel is presented each side’s argument and makes a binding decision on the dispute. By using FINRA Arbitration, investors have control over their destiny and can receive relief from financial damages suffered at the hands of their stockbroker.
During arbitration, both sides will present their case to a panel of arbitrators, who will then decide who is right and who is wrong.
Navigating legal proceedings can be an intimidating and overwhelming experience, especially when it needs to go all the way up to arbitration. Once you have reached that point, it’s time to give your side of the story and explain why you are right while making sure the other party is wrong. This will take place in front of a panel of arbitrators who have no pre-existing biases or favoritism toward either side – they will simply weigh both parties’ evidence and make the final ruling on who is right and who is wrong. It’s important to come prepared with your best evidence so that your chances for getting a favorable ruling increase dramatically!
If the arbitrators find that the broker was at fault, they can order the broker to pay back your losses plus interest.
During the course of the arbitration, arbitrators will examine all evidence and determine whether or not a broker was at fault for your losses. If the arbitrators find that the broker is responsible, they may order them to pay you back what you have lost, claims can include interest and attorneys’ fees though these are not often awarded. This is usually the only way to get compensated for any trouble your broker may have caused you due to their wrongdoing. As the SEC recommends, you should find a lawyer experienced in securities cases.
Sean M. Sweeney is a shareholder at Halling and Cayo, a full service law firm in Milwaukee, WI and the head of its Securities Litigation team.
He represents individual and institutional investors in FINRA arbitration and court nationwide. He recovers investment losses from fraud or breach of duty from their broker-dealer.
Contact him at (414) 755-5020 or via e-mail at SMS@hallingcayo.com to see if he can help recover your funds.
FAQs
California law holds financial advisors to a high standard of conduct. If they breach this duty, they may be liable to their clients for any losses, even if the harmful conduct was not intentional. This is known as broker negligence.
What happens if a stock broker loses your money? ›
Typically, when a brokerage firm fails, the Securities Investor Protection Corporation (SIPC) arranges the transfer of the failed brokerage's accounts to a different securities brokerage firm. If the SIPC is unable to arrange the accounts' transfer, the failed firm is liquidated.
Are stock brokers liable for losses? ›
Yes, you can sue your broker if you have had losses in your financial account. There are two primary ways of suing your broker: filing a suit or filing an arbitration.
Can you sue for stock losses? ›
Losing money in an investment account isn't necessarily grounds for a lawsuit. There are two available paths for legal action: arbitration or the court system. In many cases, class-action suits can co-occur with individual suits.
What happens to your money if brokerage firm fails? ›
However, should your firm cease operations, don't panic: In virtually all cases, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. Multiple layers of protection safeguard investor assets.
Are stocks protected if broker fails? ›
SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash.
Can stock broker take your money? ›
One example of the ways brokers can steal money from clients accounts is through unauthorized trading. An example of unauthorized trade is one in which the broker makes a trade on behalf of the firm into the account of the client without their consent.
Is money in a brokerage account protected? ›
The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that protects customers of SIPC-member broker-dealers if those firms were to fail financially. SIPC protects brokerage accounts of each customer up to $500,000, including up to $250,000 for cash.
What is broker negligence? ›
If a broker does not fulfill his or her fiduciary duty by failing to disclose a known material fact to a buyer, or is otherwise negligent in a manner that results in financial loss to a buyer or seller, a claim for negligence, breach of fiduciary duty or fraud may be brought by the client.
What is the penalty for stock broker? ›
(c) charges an amount of brokerage which is in excess of the brokerage specified in the regulations, he shall be liable to 7[a penalty 8[[which shall not be less than one lakh rupees but which may extend to five times the amount of brokerage]] charged in excess of the specified brokerage, whichever is higher.] 2. Subs.
If you own a stock where the company has declared bankruptcy and the stock has become worthless, you can generally deduct the full amount of your loss on that stock — up to annual IRS limits with the ability to carry excess losses forward to future years.
How do I get my money back from stock losses? ›
You can deduct stock losses from other reported taxable income up to the maximum amount allowed by the IRS—up to $3,000 a year—if you have no capital gains to offset your capital losses or if the total net figure between your short- and long-term capital gains and losses is a negative number, representing an overall ...
How to recover money lost in the stock market? ›
How to Recover From a Big Trading Loss
- Learn from your mistakes. Traders need to be able to recognize their strengths and weaknesses—and plan around them. ...
- Keep a trade log. ...
- Write it off. ...
- Slowly start to rebuild. ...
- Scale up and scale down. ...
- Use limit and stop orders.
They must also have a certain amount of liquidity on hand, thus allowing them to cover funds in these cases. What this means is that even if you have more than $500,000 in one brokerage account, chances are high that you won't lose any of your money even if the broker is forced into liquidation.
Is Charles Schwab in financial trouble? ›
From August 2022 through March 2023, Charles Schwab lost deposits due to client cash sorting at a pace of $5.6 billion per month as yields on savings accounts or other safe short-term assets like certificates of deposits rose. These deposit outflow pressures slowed significantly following the regional banking crisis.
Can you owe your broker money? ›
With a margin account, it's possible to end up owing money on an individual stock purchase. Your losses are still limited, and your broker may force you out of a trade in order to ensure you can cover your loan (with a margin call).
Do you get money back if you lose money on stocks? ›
You can't simply write off losses because the stock is worth less than when you bought it. You can deduct your loss against capital gains. Any taxable capital gain – an investment gain – realized in that tax year can be offset with a capital loss from that year or one carried forward from a prior year.
How do brokers make money when you lose? ›
Trading against users
Some brokers earn a profit when their clients lose money on trades, which is something you'd want to avoid. In this instance, brokers don't hedge anything and instead accept all market risk, taking the position opposite to yours.
