Stockbroker fraud or fraud in connection with the sale of securities is prohibited by federal and state laws. Private causes of action for stockbroker fraud, and investment fraud including churning, suitability, and other violations of the federal securities laws, such as the failure to supervise, generally, are recognized under Section 10(b) of the Exchange Act of 1934, and SEC Rule 10b 5.
Private causes of action against stockbrokers for fraud, or claims, arising from the sale of unregistered securities, or new issues, involving fraud, or the failure to disclose material facts, are authorized by Section 12(2) of the Securities Act of 1933.
Fraud in connection with the sale of securities, or the sale of unregistered securities is prohibited under the laws of all States. Most states provide for a private right of action for these violations to recover damages, and certain states, by statute, provide for the recovery of exemplary damages, together sometimes with interest, costs, and reasonable attorney's fees.
Most securities related claims against stockbrokers for fraud, however, present federal questions. As such, the federal courts have jurisdiction with respect to these claims, and parties are required to bring their action or lawsuit, together with any other supplemental claims that may arise under state law or common law, in the United States District Court.
Most brokerage firms, however, almost universally, require their customers to contractually agree to submit all disputes arising in connection with their securities account to binding securities arbitration, before a forum sponsored by a Self Regulatory Organization, such as the Financial Industry Regulatory Authority or FINRA formerly NASD Regulation, Inc., the New York Stock Exchange, or the American Stock Exchange. . These Self Regulatory Organizations ("SROs"), as a condition of membership, require your stock broker and your brokerage firm to arbitrate all eligible claims involving public customers in securities arbitration.
The agreement to arbitrate is customarily found in all stock brokerage new account agreements, margin agreements, option agreements, and also appears on the back of most monthly customer account statements.
By agreeing to arbitrate all disputes between you and your stockbroker in arbitration, you are giving up your constitutional right to a trial before a jury. However, securities arbitration is, in fact, a quick, fair and cost effective method of resolving disputes.
Following the Supreme Court's holding in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987), courts will enforce agreements to arbitrate between securities disputes between public customers and stockbrokers and their firms.
Securities arbitration matters, generally, will move to a final hearing in 12 15 months from the date of filing of your claim.
Costly discovery and deposition practice, under most circumstances, is avoided in securities arbitration. Securities arbitration panels for the most part are familiar with most securities related issues, and claims against stockbroker and investment professionals for securities and investment fraud.