Glossary of Terms
Answer - A respondent's written reply to a claim.
Arbitration/Counsel or Arbitration Administrator - The person at the sponsoring organization who handles administrative matters in arbitration proceedings.
Arbitrator - A person chosen to decide disputes between parties.
Claim - A demand for money or other relief.
Claimant - A person making a claim.
Counsel - An attorney who advises and represents a party in an arbitration.
Counter claim - A claim against the claimant.
Cross-Claim - A claim by a respondent against a co-respondent previously named by the claimant.
Failure to Follow Instructions - Brokers are required to follow their customers’ instructions. Brokers who fail to execute a transaction according to their client’s instructions may have breached their fiduciary duty to the client.
Filing - Now everything is filed online at the FINRA Party Portal
Forgery - Brokers are not permitted to sign their clients’ signature on any documents, whether you give your permission or not!
Fraudulent Misrepresentation - A broker misrepresents an investment when they falsify state facts relating to the investment to induce the customer to make a purchase they would otherwise not have made. Brokers are also not permitted to present clients with fraudulent documents that misrepresent an investment or investment strategy.
Margin Abuse - Margin accounts can be highly risky for investors but can be highly profitable for brokers. Margin abuse or fraud occurs when a broker extends the margin to a customer’s account with the goal of producing excessive commissions or fees. Sometimes, brokers use margin without the client’s consent or full understanding, yet another violation!
Misappropriation of Funds - "Misappropriation” refers to a broker using customer funds for purposes the customer has not authorized which may not be legal (transferring assets into the broker’s own account). RED FLAG – immediate action is required!
Omission - A broker engages in omission when they neglect to disclose material facts relating to an investment that might have persuaded the customer to not make a purchase.
Over concentration - A diversified portfolio, generally speaking is a successful portfolio. Brokers who concentrate client funds in a single investment or series of related investments risk substantial loss. ANOTHER RED FLAG!
Panel - The group of arbitrators that decides the dispute.
Party - A person or broker/dealer making or responding to a claim in an arbitration proceeding.
Pleadings - The claim, answer, counterclaim, and/or third-party claim and/or cross-claim filed in an arbitration.
Red Flag - When you feel that the brokerage firm or broker has made a statement or completed an action that sets off your internal alarms.
Respondent - The person against whom a claim is made.
Selling Away - Selling away refers to the sale of securities not authorized by the broker’s member firm and without the member firm’s knowledge. The firm can still be held liable, though!
Service - Delivery of the statement of claim or other pleadings to those parties named in the arbitration.
Third-Party Claim - A claim by the respondent against a party not already named in the proceeding.
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