Common Mistakes Investors Make in Dealing With Brokers

Many investors unintentionally hurt their own cases after they discover wrongdoing. Your best bet for recoverying your losses is to contact an attorney immediately.

The worst thing you can do is write a letter to the brokerage firm. That might sound harsh, but it's the truth. We've seen hundreds of instances where clients have written letters, and in all but a few, the letters ended up hurting their case. The brokerage firm often suggests writing a letter when an investor complains. The brokerage firm’s lawyers use the letter in court or arbitration hearings to limit the amount of money under dispute. You shouldn't write a letter unless you are sure beyond a shadow of a doubt of the amount you have lost and what your claims are. Even sophisticated investors are usually unskilled in this type of endeavor; a securities lawyer's expertise is generally required to craft a formal complaint in the appropriate venue.

Recorded conversations are also bad. Brokers are often coached on what to say in a recorded conversation with their clients and to move the discussion to get the client to say things favorable to the brokerage firm.

E-mails are also problematic. There's a joke within the legal profession that the "e" in e-mail stands for evidence. People don't think that when they write an e-mail that it will later be used against them in an arbitration proceeding. The general rule is: the less communication with the broker and brokerage firm, the better. Hire an experienced attorney to communicate for you.

Other mistakes investors make include:Continuing to check your account and actively manage it once you suspect something is wrong.

This is a common behavior. The brokerage firm can track your log-ins and will use frequent checking of your account as evidence that you are a sophisticated investor. It weakens your cases in an arbitration hearing. Likewise, continuing to deal with your broker after you suspect something is wrong can only hurt you.

Listening to a broker's sob stories.

Brokerage firms are large companies. They have plenty of money and plenty of employees. They use the brokers' personal relationships with clients to forestall client complaints. They count on this personal bond to prevent lawsuits. Falling for this sentimental pitch hurts many investors.

The broker may plead with the investor to not file a complaint because he could lose his license. He may claim that he himself lost money on the same investments. He may talk about other investors who are in the same boat. He will almost certainly give an explanation that the losses the investor suffered were due to causes beyond his control. These deceptive tactics are designed to distract you from the broker's malfeasance, and to stop or slow any legal action from the investor.

Make no mistake: even with the recent trading scandals and government fines, the brokerage firm's profits are up! These companies are in no imminent danger of going out of business. On the contrary, they are making more money than ever. You as an investor sue the brokerage firm, not the individual broker. The brokerage firm had a responsibility to supervise the broker.

It's also not necessarily true that individual brokers lose their jobs when they lose arbitration cases. Brokers can continue to operate even if they have numerous cases filed against them. We have seen brokers with over a dozen cases and complaints continue to operate with their licenses.

Feeling guilty

Many investors are ashamed of losing money. Even if they are victims of bad brokers, they feel guilty and stupid. As part of their damage control tactics, the brokerage firms encourage this investor guilt by saying "you wanted us to buy that stock". Don't feel guilty if you were a victim!

Investors often rationalize their losses to themselves by thinking that everyone is in the same boat. Everyone loses money if the market goes down, right? Yes, but not everyone is a victim of fraud. There's a difference between losing money in a down market and suffering from broker misconduct. If you have been a victim, there is no need to feel alone; 10,000 claims are filed by attorneys in the securities industry per year.

Contact Us
Contact Us: (800) 259-9010