How do I know if I have been defrauded?

It is often difficult for investors to determine whether they have been victims of investment fraud. A trusted professional advisor, such an accountant, may become aware of the possibility upon a review of financial matters. Other times, investors may have sufficient knowledge about investment matters to recognize suspicious activity in their account.

Suspicious activity in an investor's account or on the part of a broker may include:

• a recent flurry of account statements verifying transactions the investor did not authorize
• unidentifiable debits or credits on monthly account statements losing money in a "up" market
• experiencing decline in the majority of investments recommended by the broker.

See "Types of Stockbroker Misconduct" for more signs of potential investment fraud.

Once an investor discovers suspicious activity in his or her account, a consultation with an attorney experienced in securities arbitration matters can assist the investor in determining whether he or she may be able to recover some or all of the losses.

Should I attempt to resolve a dispute about my investment account with my broker?

Investors can file an informal complaint with the firm themselves without seeking legal counsel. However, be aware that the time spent investigating will most likely result in a denial of recovery of funds for the investor, as brokerage firms are very aware that the arbitration process is in place to pursue recovery of funds. Also, while the brokerage firm investigates, the "eligibility" time to file a complaint in arbitration or the "statute of limitations" to file a complaint in court is running (see below, "Is it too late to take action?), and the investor may be foreclosed from pursuing other complaints.

What can I do if I think I have been defrauded?

Investors who suspect they have been defrauded by a broker or brokerage firm can pursue the following avenues of relief:

Formal disciplinary action: The National Association of Securities Dealers (NASD) and the various State securities divisions offer a formal complaint process to investors, with the filing of a complaint triggering an investigation of the broker or brokerage firm. If the investigation proves that the broker or firm has engaged in any unlawful practice, the broker will be subject to formal disciplinary action, such as a suspension of the broker or the firm's registration to sell securities. NASD and state securities division complaints can be filed at any time and do not require the assistance of an attorney.

Complaint in arbitration against broker/brokerage firm: Most investors who have been defrauded and sustained a loss want to recover money, in which case they must also file a complaint in arbitration (or a formal lawsuit in rare cases). Disputes between investors and their brokers are generally subject to the arbitration process because most brokerage firms use an arbitration agreement as a condition to establishing a brokerage account.

Is it too late to take action to protect my investment?

There are legal time limitations that exist for an investor to file a securities fraud claim. The period in which to file an arbitration claim is called the "eligibility" period, and, to file a formal lawsuit, the time period is called the "statute of limitations." If an investor wants to file a claim, he or she should act as soon as possible to prevent these time limitations from barring his or her claim. The lengths of eligibility and statute of limitations periods vary, as they are contingent upon the facts of each case. A qualified securities law professional can better assist an investor in discussing how much time is available to file a claim for recovery.

Will the results of arbitration be favorable for me, and how much might I recover?

It has been reported by the Securities Arbitration Commentator - a periodical publication that studies the statistics of securities arbitration cases - that 80% of all investor cases settle before trial with some recovery of funds for the investor. Also, 55% of claims that go to a hearing in arbitration result in a favorable recovery for the investor. Though no attorney can guarantee a favorable recovery, investors have been awarded out-of-pocket losses, compensation for what an account should have generated absent a broker's mismanagement, reasonable attorney fees and interest on the losses, and, in some egregious situations, punitive damages.

Do I need a lawyer to file an arbitration claim, and how much will the lawyer charge me?

It is not required that investors have a lawyer represent them in an arbitration proceeding. However, all investors should know that the broker will most likely be represented by a sophisticated securities defense lawyer well-versed in the securities arbitration field. When a customer represents himself or herself in a securities case, the individual's emotion, subjectivity, inexperience in case preparation, disorganization, and unfamiliarity with procedures may result in no recovery or substantially reduced recovery. A study from the General Accounting Office found that customers who retained legal counsel won their cases more often and received higher awards than those customers who represented themselves.

Attorneys can be retained on a contingency-fee basis to pursue recovery for stockbroker misconduct against a broker or the broker's firm, with the attorney recovering fees only if the investor recovers a judgment in the case.

Is pursuing a claim in arbitration going to consume my life and cause me undue stress?

Filing a claim in arbitration is a procedure that is designed to be faster and more efficient than filing a formal legal complaint, often with a conclusion between 12-16 months of an investor's first consultation with an attorney. By consulting with an experienced securities law attorney, an investor can be assured that the claim is given serious consideration and the investor's decision to pursue recovery is in capable hands.

Glossary of Terms

Arbitration - A process in which an investor files a claim for recovery of lost investment funds against a broker or brokerage company. The claim may settle or proceed to a hearing before a three-member panel of arbitrators.

Churning - A broker's act of turning over an investor's account in excessive sizes or frequencies solely for the purpose of generating commissions.

Eligibility Period - A period of time determined by law in which an investor can file a claim in an arbitration forum after the investor discovers that he or she has a claim to pursue. The length of the eligibility period varies according to the particular case.

Failure to Supervise - This occurs when a brokerage firm fails to supervise its individual brokers and its recommendations to investors to ensure compliance with and prevent violations of the rules of the securities industry.

Fiduciary Duty - The highest standard of care a broker owes to an investor client, based on the level of trust and confidence in the broker's expertise.

Misrepresentation - A breach by the broker of his duty of good faith not to misrepresent any "material" fact - a fact that addresses the nature or quality of the investment or the degree of risk involved - to the investor in the sale or recommendation of an investment.

National Association of Securities Dealers Registration (NASDR/NASD) - The National Association of Securities Dealers Registration is a company of the National Association of Securities Dealers. The NASDR/NASD are national organizations regulating the securities industry for the benefit and protection of investors.

Omission - Similar to a misrepresentation, an omission occurs when a broker has failed altogether to disclose a fact material to the investor's decision-making process.

Overconcentration - This is the failure by a broker to diversify an investor's portfolio to provide protection against a decline in value of one particular investment.

State (Ohio) Division of Securities - A state level organization that oversees the securities industry. The Ohio Division of Securities is responsible for providing investor protection and enhancing capital formation by administering and enforcing Ohio's securities laws.

Statutes of Limitations - Periods of time defined by state law in which an investor can file a formal securities fraud lawsuit in a court of law after the investor discovers that he or she has a claim to pursue. The length of the statute of limitations period varies according to the particular case.

Unauthorized Trading - A broker who buys or sells securities in an investor's account without the prior consent of the investor has engaged in unauthorized trading.

Unsuitability - If a broker recommends an investment not in alignment with the investor's financial situation, investment goals and objectives, future needs, and risk tolerance, the broker may be held liable for losses from an unsuitable recommendation.