Stockbroker Arbitration Recourse Against Fraud

Dallas, TXIf you have been the victim of stockbroker fraud, you will most likely find no recourse against your stockbroker other than to go through stockbroker arbitration. That is because you likely signed a contract with your financial advisor that obligates you to file arbitration in cases where you experience stockbroker investment fraud.

Stockbroker arbitration can be a good way to resolve a dispute with your financial advisor. Claimants have managed to recover losses when they have gone through arbitration. However, the process can be complex and, as some critics of the process note, it can be weighted against consumers.

Part of the problem is that the industry in question—in this case the financial industry—will have a representative on the arbitration panel. Furthermore, in forced arbitration, which is what contracts push the consumer into, consumers have very little means to protect their rights compared with lawsuits.

That is where having an experienced lawyer to represent you can help to tip the scales a little more in your balance. That's because a stockbroker arbitration lawyer will understand the process involved in an arbitration, including filing the proper paperwork and all the necessary deadlines.

Arbitration Filed Against Stockbroker

A broker from Michigan is alleged to have persuaded more than 800 investors to invest millions of dollars in securities that had no value. The broker, Frank Bluestein, now faces more than 100 pending investor arbitrations, according to The Wall Street Journal (September 29, 2009). According to a civil lawsuit filed by The Securities and Exchange Commission, Bluestein was the single largest salesperson in the $250 million Ponzi scheme. Furthermore, the complaint alleges, most of Bluestein's investors were elderly.

Although the SEC does not allege that Bluestein knowingly persuaded investors to put their money in a Ponzi scheme, it does allege that he did not conduct due diligence before marketing the securities as low-risk investments. Investors were told their money was going to a company that invested in telecommunications equipment for Hilton Hotels, MGM Grand and other hotels. However, the company really had very little communications equipment, had absolutely no deals with any of the hotels and the investment was worthless, according to USA Today (October 2, 2009).

The same article notes that Ponzi schemes—in which financial advisors use money from new investors to pay back previous investors—are among the most prevalent financial schemes. Bernard Madoff's Ponzi scheme may have been the highest-profile, but there are many others out there. And, as long as there are Ponzi schemes there will be investors lining up for stockbroker arbitration, to try to recover their losses.