1. WHAT IS A SECURITY?

A security is an investment instrument that signifies an ownership position in a corporation (also known as “stock”), as opposed to a creditor relationship with a corporation or governmental body (also known as a “bond”).

2. WHAT IS SECURITIES ARBITRATION?

Arbitration is an alternative dispute resolution process by which the parties to a dispute submit their differences to the judgment of an impartial person or group appointed by mutual consent, statutory requirement or contractual provision. Most brokerage houses have an arbitration clause in their standard customer agreement form wherein the customer-investor agrees to arbitrate all his or her securities disputes that may arise with the brokerage firm. As a result, the overwhelming majority of customer disputes are arbitrated rather than litigated in court. The strengths of securities arbitration are that disputes are resolved more quickly before an arbitrator or arbitration panel that is proficient in the issues that arise in a securities dispute.

Securities arbitration is governed by securities law, such as the investment acts and rules promulgated by the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD).

3. HOW LONG DOES ARBITRATION USUALLY TAKE?

Every arbitration is unique. However, depending on the complexity, most arbitrations are resolved within twelve (12) to sixteen (16) months.

4. WHAT IS SECURITIES FRAUD?

Securities fraud occurs when an entity illegally manipulates the market, through deliberate concealment or distortion of information, resulting in monetary losses for investors. The SEC acts to regulate against securities fraud by enforcing investment laws and the rules promulgated thereunder.

Securities fraud may be committed by the following:

• Brokers-dealers when they mislead clients or advise based on inside information;
• Financial advisors or analysts when they purposefully offer poor advice;
• Corporations when they hide or distort information; and
• Private investors when they act on inside information.

5. WHAT ARE THE FORMS OF SECURITIES FRAUD?

The most common forms of securities fraud that the SEC regulates against include the following:

• Insider trading, which is trading based on information that is not available to the public;
• Accounting fraud, which is keeping inaccurate books or presenting false information purposefully; and
• Misrepresentation, which is presenting misleading or untrue information about a company, or its securities, to an investor or the public;
• Unsuitable recommendations, which is making inappropriate investment recommendations to the investor in light of his or her objectives.

6. HOW DO INVESTORS KNOW IF THEY HAVE A SECURITIES ARBITRATION CASE?

Unusual activities in your investment portfolio are signs that fraudulent activity may be occurring in your account. Some activities to watch out for include, but are not limited to:

• Unauthorized trading, which is buying and selling activity that occurs in your account without your permission;
• Funds being removed from your accounts;
• Purchase of investments that are inappropriate or unsuitable for your risk tolerance levels;
• Purchase of wildly speculative investment vehicles without adequate explanation and warning of the risks;
• Churning, which is excessive trading that occurs in your account for the purpose of generating sales commissions;
• Over concentration of securities in one area or sector in your portfolio; and
• Lack of a diversified and balanced allocation of investment vehicles in your portfolio.