The "Just Say No" Tactic
One of the reasons I write these articles is to educate my readers about their rights and remedies when it comes to their brokerage accounts. Far too many people with brokerage accounts are unaware of the strict rules and regulations which brokers and firms must follow and the potential violations that can occur. You would be surprised, for example, how many people dont know that in a non-discretionary account, the broker must discuss in detail each and every trade with the client prior to the transaction, including number of shares, price, and the pros and cons of the security. The SEC , on the same bandwagon, recently completed a week-long Investor Education Campaign that was broadcast by satellite nationwide. The SEC stated, "Americans are increasingly responsible for their own financial security, but many lack the basic information they need to save and invest wisely, and avoid costly mistakes."
While investors must take some responsibility for their brokerage accounts, the bulk of responsibility falls on the shoulders of the brokerage industry - after all - the brokers and managers are the ones with the securities licenses. I must often advise dejected, guilt-ridden clients that they should not blame themselves for their losses (assuming there was wrongdoing in their account).
"Just Say No"
But theres another problem brewing on the brokerage industry side - the brokerage firms routine denial of customer complaints and sometimes outright refusals to respond to customer complaints. I have one case against a New York firm called R.D. White where the customer wrote a complaint letter to the head of the firms compliance department. After he received no response, he wrote another complaint letter to the President of the company. He never received a response to either letter! This is a rare and unusual tactic better known as "Just Dont Say".
The "Just Say No" tactic is employed by most brokerage firms in dealing with a customer complaint. In more cases than not, it doesnt even matter what the customer is complaining about - the firm typically will send out a standard letter containing some or all of the following language:
- We have discussed this matter with you salesman and he assured us that you fully discussed the hotel reservation policies and were fully informed of all of the risks.
- You are a wealthy, knowledgeable and well-informed traveler and this was time you were willing to take risks with.
- You were very involved in the trading in the account, as evidenced by the fact that a number of the trades were your own.
- Through the confirmations and monthly statements, you had at your disposal all of the information you needed to evaluate the account, including the level of activity and the types of investments made.
- While we share the disappointment of your accounts performance, courts and arbitration panels alike have routinely held that brokers who make recommendations in good faith based upon publicly available information are not liable merely because the investments recommended decline in value.
What would expect them to say - "Sorry - we screwed you?" And how would you feel if you got a response letter like the above? Many of you would simply drop the matter. And that means that from the brokerage firm perspective, the "Just Say No" tactic works.
A Numbers Game
You see, for the brokerage industry, its a numbers game. Very few people catch that their broker has done something wrong. For those who do, theres a small percentage who do something about it. They blame themselves or figure they cant fight the system. Many who do take action, make the mistake of verbally complaining, instead of complaining in writing. A verbal complaint is almost always ignored because the securities regulations define a "customer complaint" as only a written complaint, not an oral one. Therefore, there is no requirement that brokerage firms even document, much less respond to or handle professionally, an oral complaint.
If you ever have a complaint or even a question about what your broker has done in your account, always put it in writing. It is most important to document your concerns if you think a broker has made at trade without first discussing it with you in detail (either the buy or the sell). That is a de facto violation, regardless of whether you thought it was okay or your broker convinced you it was okay. You can apologize to your broker verbally, but if you dont get your complaint in writing, no one is required to look into it. If you later find yourself in a lawsuit, you will be hammered by the brokerage firm for not documenting your problem.
If customers do put their complaints in writing, they are usually rebuffed with the "Just Say No" letter described above. For those who dont quit, some try to go it on their own and file their own claim. Statistics show that customers representing themselves ("pro se claimants") usually lose. Thats because they are small potatoes for the industrys high paid securities attorneys who do nothing but defend these type of cases. Some customers hire an attorney who may be experienced in litigation but not in securities fraud arbitrations. They, too, are often mincemeat for the brokerage firm attorneys.
These facts paint a grim picture and I certainly dont meant to discourage you from taking action when youve been wronged. The majority of people who get a good securities attorney to pursue their claim prevail.
A Happy Ending
A woman wrote a complaint letter to a big brokerage firm we all know. She complained that her broker had made too many unsuitable trades in her IRA account. The brokerage firm replied by sending the "Just Say No" letter (much of the above language came right out of her response letter). The woman hired an attorney and pursued her claim. Roughly one year later, the firm settled the case for a figure that was considerably more than her out-of-pocket losses. A happy ending, but how do you reconcile the settlement amount with the "Just Say No" letter? I cant. And I was her attorney.
Contact Ms. Stoneman - Stoneman Law Offices - Texas & Colorado. (800) 783-0748 Free Consultation - Representing Clients Nationwide
Tracy Pride Stoneman is an attorney specializing in investment related complaints. Email Tracy. Preparation of this article was assisted by Douglas J. Schulz, a registered investment advisor and former stockbroker in Colorado Springs.
DID YOU KNOW AND SECURITIES IN THE NEWS!
Because Idaho is close to Colorado, where I live, I am more familiar with its securities laws and regulations and Idaho arbitrators. Because arbitrators are from the state or region where the investor resides, my familiarity with the arbitrator roster and individual arbitrators in Idaho and surrounding states is a significant benefit. And remember that I do not need to be licensed in the state of Idaho in order to represent Idaho investors in securities arbitrations. I don’t even need to affiliate with local counsel. I also have the benefit of the knowledge of my husband Douglas Schulz (www.securitiesexpert.com), who has been hired in over 1,140 securities related matters and testified in over 637 FINRA arbitrations and civil cases regarding investment and brokerage disputes. Because the majority of his expert work is also in Colorado and surrounding states, he too is very familiar with Idaho securities arbitrators and arbitrations.
Clients often wonder how long they have to bring a claim, but the answer is not a black and white one. Investors should let a qualified lawyer evaluate the case. The good news is that there are many different remedies for the same violation, and they each have different statutes of limitations. In addition, many causes of action have what is called a “discovery rule”, allowing investors to bring very old claims because they didn’t discover the violation until more recently or because the stockbroker concealed the wrongdoing.
Investors in Idaho are protected by legislative laws and statutes together with industry rules that prohibit brokers from engaging in fraud, unsuitable sales, churning, unauthorized trading, failure to supervise, breach of fiduciary duty, or negligence. Below are useful links and resources covering some of the investor protections available in the Idaho:
- The Idaho Securities Bureau (link is https://www.finance.idaho.gov/Securities/Securities.aspx ) which is in the Department of Finance regulates the sale of investment securities (e.g., stocks and bonds) and those individuals and entities that offer investment opportunities to the public.
- The Idaho Securities Act (link is https://www.finance.idaho.gov/StatutesAndRules.aspx ) is a state law regulating the securities industry. The Act contains provisions for the registration of securities, exemptions and sanctions for violations.
- FINRA (link is http://www.finra.org/) is an independent regulatory agency that regulates all broker-dealers in the United States.
- Securities and Exchange Commission (SEC)(link is https://www.sec.gov/) also creates and enforces the securities laws.
Stoneman Law represents investors in all major Idaho cities including Boise, Nampa, Meridian, Idaho Falls, Pocatello, Caldwell, Coeur d’Alene, Twin Falls, Lewiston, and Post Falls. Consultations are free of charge and the firm is only compensated if you recover.
Where Do FINRA Arbitrations Take Place in Idaho?
All arbitrations for Idaho residents take place in Bismarck.
And remember that arbitrations take place in the state where the investor resides, NOT where the brokerage firm or stockbroker office!!
Idaho Securities News:
November 30, 2017. The Ada County District Court has awarded a $152,676 judgment against Jeffrey “Jeff” Grant Jerome of Boise for alleged violations of the Idaho Uniform Securities Act involving the Powerhouse event center in Boise.
According to the original complaint, Jerome allegedly obtained approximately $238,500 from 17 Idaho investors and falsely led many investors to believe that they would have an ownership interest in the Powerhouse building. Jerome also was alleged to have defrauded investors by making various misrepresentations about the investment while omitting such important disclosures as: misrepresenting to some investors that their funds would be used to purchase the Powerhouse building; failing to inform investors that some of the funds raised would be used to pay Jerome’s personal expenses, pay back loans to himself and others and pay back rent on the Powerhouse building; and failing to disclose to investors that he was renting, not purchasing, the Powerhouse building.