Glossary of Terms
Answer - The brokerage firm/stockbroker’s response to the Statement of Claim filed by the Claimant.
Arbitration Administrator - The person at FINRA who handles administrative matters related to the arbitration case.
Arbitrator - A person chosen to decide disputes between parties.
Claim - A demand for money or other relief.
Claimant - A person making a claim.
Counsel – A lawyer who advises and represents a party in an arbitration.
Counter claim - A claim against the claimant. These are rare in securities arbitration cases.
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 - Brokers misrepresents an investment when they falsify 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 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 - Brokers engage in omissions when they neglect to disclose material facts relating to an investment that might have persuaded the customer to not make the 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. 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 - The internal alarms that should go off within a brokerage firm when it spots something out of the ordinary regarding your account or your stockbroker.
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, because it should have known of the selling away practice.
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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