Securities Litigation Arbitration
What Is Securities Litigation Arbitration?
Securities litigation arbitration refers to legal disputes between investors and their financial professionals, such as a broker/registered representative or an investment adviser. These disputes are often litigated in arbitration forums because financial professionals include mandatory arbitration clauses in investor account documents. Legal disputes between investors or “customers” and their broker or registered representative are litigated in FINRA Dispute Resolution. Disputes between investors and their investment advisers may be litigated in other non-FINRA arbitration forums, if the advisory agreement executed between the parties contains an arbitration clause and specifies an arbitration forum.
Why Is My Securities Case in Arbitration, and Not in State or Federal Court?
Technically speaking, it is likely that your securities case will be filed in an arbitration forum as opposed to state or federal court. This is because it is likely that you or someone on your behalf executed or signed an account opening or advisory agreement that contained an arbitration clause. Generally speaking, arbitration clauses require that any dispute between the parties (you and your investment professional) would be litigated in legally binding arbitration. Therefore, it is likely that you or someone on your behalf already agreed that any dispute between you and your broker-dealer, broker, or adviser would be litigated in arbitration. In a practical sense, arbitration is a way of litigating specialized cases in a more streamlined fashion before arbitrators that may have a more advanced knowledge of the industry or area of the law relating to the matter at issue.
When Does an Investor Have a Possible Securities Litigation Arbitration Claim Against a Broker-Dealer, Broker, or Adviser?
If you signed an account agreement with your broker/broker-dealer or an advisory agreement with your investment adviser, and you believe that you have been defrauded or that a tort or civil wrong has been committed against you, you may have an actionable claim.
Possible Securities Litigation Arbitration Claims
Securities arbitration cases include investor-Claimant claims for suitability (the recommendation of unsuitable investments), churning, unauthorized trading, self-dealing, fraud, selling away, failure to supervise, breach of fiduciary duty, negligence and breach of contract, amongst others against brokers, broker-dealers, investment advisers, and/or investment adviser representatives.
The Timeline of a Typical Securities Litigation Arbitration Claim in FINRA Dispute Resolution
- The filing of the “Statement of Claim” by the investor or “Claimant” against the broker/broker-dealer or “Respondents.”
- The Statement of Claim is drafted and filed by the Claimant’s lawyer and contains allegations of misconduct by the Respondents. A Statement of Claim is like a Complaint.
- The Respondents respond by filing an Answer.
- The Respondents will respond to the Statement of Claim by filing an Answer, which may include affirmative defenses and/or counterclaims. The Answer is due forty-five (45) days after the filing of the Statement of Claim.
- Claimant and Respondents select an Arbitrator(s).
- Scheduling an Initial Pre-Hearing Conference (“IPHC”).
- At the IPHC, the Claimant, Respondents, and Arbitrator(s) discuss preliminary and procedural issues, such as the discovery deadline, motions’ and briefing deadlines, the scheduling of the evidentiary hearing, and the possibility of mediating the dispute.
- Discovery is where Claimant and Respondents exchange documents and information. FINRA Dispute Resolution Arbitration strongly discourages depositions. Therefore, the exchange of documents and information is critically important to the success of a FINRA customer case.
- Arbitration Evidentiary Hearing.
- Arbitration Decision.
- The Arbitration Decision is written and served by the arbitrator(s) on counsel for both Claimant and Respondents.
Berger Montague Attorneys Who Will Handle Your Securities Litigation Arbitration Needs
Michael Dell’Angelo is a Managing Shareholder in the Antitrust, Commercial Litigation, Commodities & Financial Instruments practice groups, and Co- Chair of the Securities department. He serves as co-lead counsel in a variety of complex antitrust cases, including Le, et al. v. Zuffa, LLC, No. 15-1045 (D. Nev.) (alleging the Ultimate Fighting Championship (“UFC”) obtained illegal monopoly power of the market for Mixed Martial Arts promotions and suppressed the compensation of MMA fighters).
Mr. Dell’Angelo is responsible for winning numerous significant settlements for his clients and class members. Most recently, as co-lead counsel, Mr. Dell’Angelo recently helped to reach settlements totaling more than $190 million in the multidistrict litigation In re Domestic Drywall Antitrust Litig., No. 13-md-2437 (E.D. Pa.). There, in granting final approval to the last settlement, the court observed about Mr. Dell’Angelo and his colleagues that “Plaintiffs’ counsel are experienced antitrust lawyers who have been working in this field of law for many years and have brought with them a sophisticated and highly professional approach to gathering persuasive evidence on the topic of price-fixing.” In re Domestic Drywall Antitrust Litig., No. 13-md-2437, 2018 WL 3439454, at *18 (E.D. Pa. July 17, 2018). “[I]t bears repeating,” the court emphasized, “that the result attained is directly attributable to having highly skilled and experienced lawyers represent the class in these cases.” Id.
Mr. Dell’Angelo also serves as co-lead counsel or class counsel in numerous cases alleging price-fixing or other wrongdoing affecting a variety of financial instruments, including In re Commodity Exchange, Inc., Gold Futures and Options Trading Litig., 1:14-MD-2548-VEC (S.D.N.Y); In re Platinum and Palladium Antitrust Litig., No. 14-cv-09391-GHW (S.D.N.Y.); Contant, et al. v. Bank of America Corp., et al., 1:17-cv-03139-LGS (S.D.N.Y.); In re Libor-Based Financial Instruments Antitrust Litig., No. 11-md-2262 (S.D.N.Y.); Alaska Elec. Pension Fund, et al. v. Bank of Am. Corp., et al., No. 14 Civ. 7126-JMF (S.D.N.Y.); In re Crude Oil Commodity Futures Litig., No. 11-cv-3600 (S.D.N.Y.); and In re London Silver Fixing, Ltd. Antitrust Litig., No. 14-md-2573 (S.D.N.Y.).
The National Law Journal recently featured Mr. Dell’Angelo in its profile of Berger Montague for a special annual report entitled “Plaintiffs’ Hot List.” The National Law Journal’s Hot List identifies the top plaintiff practices in the country. The Hot List profile focused on Mr. Dell’Angelo’s role in the MF Global litigation (In re MF Global Holding Ltd. Inv. Litig., No. 12-MD-2338-VM (S.D.N.Y.)). In MF Global, Mr. Dell’Angelo represented former commodity account holders seeking to recover approximately $1.6 billion of secured customer funds after the highly publicized collapse of MF Global, a major commodities brokerage. At the outset of this high-risk litigation, the odds appeared grim: MF Global had declared bankruptcy, leaving the corporate officers, a bank, and a commodity exchange as the only prospect for the recovery of class’s misappropriated funds. Nonetheless, four years later, a result few would have believed possible was achieved. Through a series of settlements, the former commodity account holders recovered more than 100 percent of their missing funds, totaling over $1.6 billion.
Mr. Dell’Angelo has been recognized consistently as a Pennsylvania Super Lawyer, a distinction conferred upon him annually since 2007. He is regularly invited to speak at Continuing Legal Education (CLE) and other seminars and conferences, both locally and abroad. In response to his recent CLE, “How to Deal with the Rambo Litigator,” Mr. Dell’Angelo was singled out as “One of the best CLE speakers [attendees] have had the pleasure to see.”
What Types of Securities Arbitration Cases Does Berger Montague Handle?
- Unauthorized Trading: The purchase or sale of securities that a broker or registered representative makes for a customer without the customer’s permission.
- Selling Away: Selling away is the inappropriate practice of an investment professional, such as a registered representative, broker, or financial adviser who sells or solicits the sale of securities not held or offered by the brokerage firm with which he or she is associated. Selling away often involves investment securities that are in the form of a private placement or other non-public investment.
- Churning: Churning occurs when a broker or registered representative conducts excessive trading in a client’s or customer’s account mainly to generate commissions and without regard to the client’s or customer’s investment objectives or interest. Churning violates SEC rules (15c1-7) and other securities laws. In addition, the registered representative or broker must exercise control over the investment decisions in the account, either through a formal written discretionary agreement or otherwise, such as through the customer routinely accepting the broker’s recommendations.
- Reverse Churning: Reverse churning is where a broker/registered representative or investment advisor moves an under-traded account from a commission to a fee-based compensation structure for the sole purpose of generating revenue from that account, or by failing to make trades in an account that would have otherwise been made had the account been commission instead of fee-based.
- Unsuitable Investments: FINRA Rule 2111, entitled “Suitability,” states that a FINRA member firm or broker/registered representative must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the client or customer. This should be based on the information obtained through the reasonable diligence of the member firm or associated person (registered representative or broker) to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the client’s or customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation. Registered representatives or brokers must have a firm understanding of both the product and the client or customer, according to Rule 2111. The lack of such an understanding itself violates the suitability rule.
- Failure to Supervise: Failure to supervise is when an individual registered representative or broker is negligent or acts in an unlawful manner against the interests of the client or customer, and that client or customer suffers damages as a result of such wrongdoing and, therefore, the member firm may be held liable for the investor’s losses. In addition, a broker-dealer owes a duty to all its customers under FINRA Rule 3010 to properly monitor and supervise its employees. FINRA Rule 3010 (a) specifically states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative, registered principal, and other associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable NASD Rules. Final responsibility for proper supervision shall rest with the member.”
- Fraud: Fraud is an intentionally deceptive action designed to provide the perpetrator with an unlawful gain or to deny a right to a victim. Under Pennsylvania law, fraud is defined as: (1) a misrepresentation; (2) a fraudulent utterance thereof; (3) an intention by the maker that the recipient will thereby be induced to act; (4) justifiable reliance by the recipient upon the misrepresentation; and (5) damages to the recipient as the proximate result.
- Breach of Contract: A breach of contract is a legal cause of action and a type of civil wrong in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party’s performance. In Pennsylvania, a breach of contract action involves the following: (1) the existence of a contract; (2) a breach of a duty imposed by the contract; and (3) damages.
- Breach of Fiduciary Duty: A fiduciary duty is a legal term that describes the relationship between two parties that obligates one to act solely in the interest of the other. The fiduciary (i.e., broker) owes the legal duty to a principal (i.e., customer), and strict care is taken to ensure no conflict of interest arises between the fiduciary and the principal. A fiduciary obligation exists whenever the relationship with the client or customer involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for the client or customer. The fiduciary must knowingly accept that trust and confidence to exercise his expertise and discretion to act on the client’s or customer’s behalf.
Contact Us for More Information
If you believe your broker-dealer, broker/registered representative, or advisor has committed any of the actions listed above, please contact us for a free confidential consultation.