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Arbitration Panels Award Damages in Stockbroker Complaints

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New York, NYInvestors who have been wronged by their stockbrokers have the option of taking their claim to Securities Stockbroker Arbitration to regain some of the money they lost due to the unethical practices of their stockbroker.

In fact, many investors might be legally bound to go through an arbitration process rather than through the courts. Unethical practices that can be taken to arbitration include account churning, negligence, breach of fiduciary duty, failure to supervise or selling unsuitable investments.

Stock brokerIn addition to individual stockbrokers, investment firms are also subject to National Association of Securities Dealers (NASD) regulations. On August 28, 2007 the NASD announced that Merrill Lynch, Pierce, Fenner & Smith Inc was handed $5 million fine for registration violations, supervisory failures, and other violations. The fine came after investigators found that Merrill Lynch Investment Service Advisors (ISAs) misrepresented mutual fund products to customers. The NASD also found that the ISAs recommended customers switch to mutual funds that were not suitable for those customers and failed to give customers information regarding costs of the new mutual funds.

In June, the NASD fined Citigroup $3 million and ordered the company to pay $12.2 million in restitution after a group of brokers promised BellSouth employees that if they switched their 410(k) into investments with the brokers the employees could retire early. However, the brokers did not tell the employees that the new investment would be riskier than the pensions.

Also in June, Wachovia Securities LLC was ordered to pay $2 million for not properly supervising its fee-based brokerage business. The company was also ordered to pay restitution to customers who where inappropriately charged for fee-based accounts. The NASD found that, in addition to other violations, Wachovia failed to properly supervise brokers who produced high revenue for the company and were members of Wachovia's "Red Carpet Club." These members were not subject to the same scrutiny as other brokers and as a result, opened fee-based accounts for customers with total assets of less than $50,000, which was the Wachovia's minimum account balance for the fee-based accounts.

People who are considering arbitration may mistakenly believe that it is not useful because there could be limits to the types of remedies that can be awarded. However, in an arbitration case, the panel can award a number of remedies to a complainant. These include:

1) Out-of-pocket losses - Usually calculated as the amount of money invested minus the return and value of the investment.

2) Lost profits - Calculated based on the profits an investor would have received if the stockbroker had acted ethically.

3) Punitive damages - Can be awarded where arbitrators believe there is a basis to do so.

4) Attorney's fees.

In fact, arbitrators have the authority to grant any award that a court could grant, meaning that complainants who go through arbitration have the potential to be awarded exactly what they would have been awarded in court.

There are time limits on when a claim can be filed. If you feel you have been the victim of an unethical stockbroker, contact a lawyer to discuss your options.


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