Resolving Disputes
Most brokerage firms and their securities agents (salespersons) deal
honestly and fairly with their clients. Sometimes, however, difficulties
and disputes can arise and, on rare occasions, fraud and theft may occur.
There are several steps you can take to protect yourself.
The best way to avoid becoming a victim of securities fraud or theft
is to arm yourself with knowledge. Before you invest, ask the salesperson
if he or she is licensed in Wisconsin and if the security being offered
is qualified for sale in Wisconsin. You may check the responses, as well
as the salesperson's disciplinary history, by calling the Wisconsin Division
of Securities.
Do not let yourself be pressured by the salesperson into making a purchase.
You may need time to determine if a purchase is correct for you, as well
as to verify the salesperson's statements about registration and licensing.
Do not fall for extravagant claims. Ask to see a copy of the prospectus
which describes the security and the company issuing it. Protect yourself
by investigating before you invest.
Resolving Disputes
Aside from clerical errors, there are a number of potentially serious
abuses which could occur in a brokerage account and of which you should
be aware. Although you may not learn of these unlawful activities until
after the fact, being able to recognize them and taking immediate action
to rectify them should be your first priority.
Abusive Practices
Unlicensed Activity
All brokerage firms and their sales agents who conduct securities business
with persons in Wisconsin must be licensed by the Wisconsin Division of
Securities. Selling securities without a license is a serious violation
of the securities law.
Unregistered Securities
Every securities offering in Wisconsin must be registered with the Wisconsin
Division of Securities, unless the offering qualifies for a specific exemption
from the registration requirements. It is against the law to sell unregistered,
non-exempt securities in Wisconsin.
Unauthorized Trading
Unless the salesperson has written authority from you, YOU must approve
each order to buy or sell before it is entered for your account. Without
such authority, the salesperson must not buy or sell securities on your
behalf and merely inform you later. The only exceptions are for a customer's
failure to pay for purchases or to deliver certificates for securities
that the customer has sold.
Unsuitable Recommendations
Brokerage salespersons are required to make investment recommendations
to customers based on a reasonable inquiry into the customer's financial
condition, investment objectives, and other relevant information. Because
not every customer can tolerate the same degree of investment risk, a
given security may be appropriate for one customer, but not for another.
Churning
Churning is a pattern of securities trading in which the salesperson
makes numerous purchases and sales of securities in order to generate
commissions. To identify churning, calculations can be made to determine
how many times the dollar value of the account was reinvested, how much
commission income was generated for the firm and the salesperson, and
what the customer would have to earn, taking those commissions into account,
in order to break even or obtain a reasonable return.
Unexecuted Trades
Brokerage firms and their salespersons are required to execute customers'
orders promptly, at prices reasonably related to the market at the time
the order was received. Salespersons must not ignore your instructions
to buy or sell or to seek a specific price in the market.
Failure to Deliver
Delivery of a customer's securities and uninvested funds must be made
within a reasonable time of the customer's request.
Unauthorized Transfer of Assets
No funds or securities may be withdrawn from your account without your
written authorization. Unauthorized transfers may be detected by closely
reviewing your monthly statements to determine that all of your funds,
securities, and transactions are accurately reported.
Fraud
Fraud can take many forms. It often consists of the misrepresentation
or omission of material facts in the offer and sale of securities. It
could also be a type of business practice, such as trading on "inside"
information, or manipulating the market price of securities.
Theft
Sometimes, out-and-out theft may take place. Never make checks payable
to a salesperson; instead, make them payable only to the brokerage firm
or the issuer of the security, such as a mutual fund. Never give cash
or securities to a salesperson. Even if the firm is bonded for losses,
it still may be difficult for you to prove that you did, in fact, give
cash or securities to the salesperson.
When brought to the attention of regulatory authorities, any of the above
activities may result in disciplinary action against the salesperson or
firm, including referral for criminal prosecution. Recommending investments
that happen to lose money, however, is not a crime or a violation of the
securities law. No one can predict or guarantee how a security will perform
after its purchase.
Self Defense
Once you have invested, vigilance becomes your best protection. The most
important step you can take to protect yourself is to review your purchase
and sale confirmation slips and monthly statements as soon as you receive
them. If you have a question, ask your salesperson for an explanation.
If you find an error, insist that it be corrected immediately. Early detection
may prevent losses from mounting and will show that you do not agree with
the actions that took place in your account. The initial contact may be
by telephone or letter, but if a telephone is used, follow up with a letter
in case proof of the conversation is needed later. Take written and dated
notes of your conversations with the salesperson, as well as with anyone
else at the firm, regarding the problem.
- Save all records of your transactions and copies of your correspondence
with the salesperson and the firm. These papers can support your version
of the facts if a dispute develops. If you send documents to your brokerage
firm or salesperson, send only copies. NEVER part with an original document
or letter; it is your most valuable piece of evidence.
- If the salesperson is unable or unwilling to resolve your concerns,
send a written complaint to the compliance department of the brokerage
firm. The letter should include details of your concerns and copies
of your monthly statements or other documents which help to explain
the problem. Again, DO NOT send your originals. If you cannot resolve
your problem with the firm, there are several alternatives you can explore.
Formal Resolutions
The Wisconsin Division of Securities regulates the offer and sale of securities;
it also licenses and regulates brokerage firms, their salespersons, and
investment advisers. You may send a letter of complaint to the Division
detailing your concerns. Be sure to enclose copies of your correspondence
with the brokerage firm and copies of all related documents.
- The Division of Securities can take disciplinary action against brokerage
firms and their salespersons who have violated the law. Although the
Division cannot require the return of a customer's funds, resolution
of disciplinary proceedings may also result in a firm's repurchase of
securities from a customer or other types of reimbursement to a customer.
- Securities transactions with brokerage firms and their agents are
governed not only by state law, but also by federal law. Federal securities
law is administrated by the U.S. Securities and Exchange Commission.
Related business-practice rules are administered by the NASD Regulation,
Inc.
Some violations of the Wisconsin securities law, including most of those
already discussed, provide grounds for civil lawsuits. Under that law,
you have three years from the date of the transaction to file a lawsuit.
You can seek a full return of your invested money, interest on that amount
at the statutory rate, and reasonable attorney's fees from those who violated
the law, including the brokerage firm, salesperson, and any partner, officer,
director, or employee who materially aided the transaction. Because other
laws may also apply, you should probably seek legal advice before deciding
to file a lawsuit.
Most customer brokerage agreements now have a provision requiring arbitration
in the event of a dispute. Such a provision currently prevents the customer
from filing a lawsuit, even for violations of the securities laws. If
the customer agreement form presented to you contains a mandatory arbitration
clause, you may ask that, as a condition of your doing business with the
firm, such a clause be deleted from the agreement before you sign it.
- Arbitration takes place outside the court system and is a less formal
process than a court proceeding. It is generally quicker and less expensive
than going to court. As with court proceedings, although no lawyer is
required, it is recommended that you seek legal advice.
- The arbitration process begins when you file a claim with an arbitration
service. The filing consists of a completed Uniform Submission Agreement,
a Demand for Arbitration, a Statement of Claim, and the required fee.
Check the rules of the arbitration service through which you are seeking
arbitration to determine if any time limitations exist.
- Arbitration cases may be tried by a single arbiter (sometimes referred
to as an "arbitrator") or a panel of three arbiters. The size
of the panel depends upon the dollar amount of the dispute and the arbitration
service's rules. The panel is selected from the service's list of available
arbiters. They will include members of the industry as well as persons
with no brokerage affiliation. In most cases, each party to the dispute
will have some input into the selection process of arbiters.
- Arbitration hearings can be held at most any location convenient to
the parties, including the offices of the service, a law firm, or a
hotel conference room. There are few formal rules governing either procedure
or evidence at an arbitration hearing. Both sides present evidence,
and the hearings seldom last more than a day or two. The arbiters are
usually given 30 business days to reach a decision. They need not give
a reason for that decision, but may state simply who won and the amount
of the award.
- Although arbitration is generally faster than a court proceeding,
in some cases the process can still take well over a year. The decision
of the arbiters is final. There is no ability to have it reviewed by
a court, except in exceptional cases of misconduct by the arbiters such
as fraud, evident partiality, corruption, or a refusal to apply the
relevant law. Because court review is unlikely and no reasons are given
for the arbiters' decision, parties to an arbitration proceeding take
the chance they will lose and never know the reason.
Five organizations conduct most securities arbitration hearings:
NASD Regulation, Inc. ("NASDR")
American Arbitration Association ("AAA")
New York Stock Exchange ("NYSE")
American Stock Exchange ("AMEX")
Chicago Board Options Exchange ("CBOE")
The organization having jurisdiction over your dispute is probably determined
by the arbitration clause in your brokerage agreement. If that is not
the case, you may choose an arbitration service yourself.
The NASDR also offers another option for resolving disputes prior to
a formal arbitration hearing-Mediation. In mediation, the parties discuss
their problems and feelings in informal joint and private meetings with
the mediator, usually an attorney with securities background. The mediator
has no power to dictate a solution but offers suggestions to help the
parties find an acceptable resolution.
Unlike arbitration, mediation is not binding. If no agreement can be
reached through mediation, you can still pursue arbitration or civil action.
In fact, if you have already filed an arbitration claim but have not gotten
to the hearing stage, you can request a delay pending mediation. Mediation
also is usually quicker and less expensive than arbitration.
Remember...
Your first attempt to resolve any problem or concern with your account
should be with the salesperson and the firm. DO NOT WAIT for a matter
to correct itself. If a resolution is not forthcoming, do not hesitate
to contact a regulatory authority such as the Division of Securities,
or to seek legal advice.
Regulatory Agencies
Following is a list of addresses for the Department of Financial Institutions
and other agencies regulating brokerage firms and securities agents:
Department of Financial Institutions
Division of Securities
P. O. Box 1768
Madison WI 53701-1768
1-800-47CHECK
www.wdfi.org
NASD Regulation, Inc.
District 8 Office - 20th Floor
10 S. LaSalle Street
Chicago IL 60603-1002
312-899-4400
U.S. Securities and Exchange Commission
Chicago Regional Office
Northwestern Atrium Center Suite 1400
500 W Madison Street
Chicago IL 60661-2511
312-353-7390
Arbitration Contacts
Information and forms for arbitration can be obtained by contacting one
of the following arbitration services:
NASD Regulation, Inc.
Arbitration Department
NASD Financial Center
33 Whitehall Street
New York NY 10004
American Arbitration Association
225 N. Michigan Avenue
Suite 2527
Chicago IL 60601
New York Stock Exchange
Arbitration Department
20 Broad Street
New York NY 10005
American Stock Exchange
Arbitration Department
86 Trinity Place
New York NY 10006
Chicago Board Options Exchange
Arbitration Department
400 S. LaSalle Street
Chicago IL 60605
About the State of Wisconsin Department of Financial Institutions
DFI provides financial education through our Your Money Matters program
including:
- Website section featuring financial awareness topics.
- Informational brochures on Investing, Credit, Financing and Entrepreneurship.
- Presentations for the public on current financial topics.
- Education Centers featuring on-line access.
- Speakers for meetings and seminars, conventions, professional and
civic groups, high school and college classes, and other audiences of
30 or more.
- E-news automated e-mail subscriber service.
DFI regulates the following:
Division of Banking -
regulatory responsibility for state-chartered banks, mortgage bankers
and licensed financial service providers.
Division of Corporate and Consumer Services -
responsible for the Uniform Commercial Code (UCC) filings, and maintaining
the state-wide data base of UCC lien filings for secured transactions,
and for organizing or licensing domestic and foreign corporations, limited
partnerships, limited liability companies, and limited liability partnerships.
Office of Credit Unions -
supervision of state-chartered credit unions.
Division of Savings Institutions -
supervision of savings and loans, and savings banks.
Division of Securities -
regulates offerings of securities including mutual funds; franchise
offerings; broker-dealers and securities agents; investment advisers and
investment adviser representatives.
Wisconsin Consumer Act -
Counsels consumers and merchants regarding their rights and responsibilities
under the Act, which governs consumer credit transactions and the collection
of consumer debt.
More About DFI
DFI is a self-supporting agency funded by fees charged to those it regulates.
DFI is here to serve you!
Visit us at:
345 West Washington Avenue
Madison, Wisconsin.
Office hours are Monday through Friday, 7:45 a.m. to 4:30 p.m.
To learn more about us visit our Website at: www.wdfi.org
Department of Financial Institutions
TTY 608-266-8818
Office of the Secretary 608-264-7800
Banking 608-261-7578
Mortgage Banking 608-261-7578
Corporations 608-261-7577
Credit Unions 608-261-9543
Savings Institutions 608-261-7578
Securities 608-266-1064
Uniform Commercial Code 608-261-9548
Wisconsin Consumer Act 608-264-7969
Financial Education
Madison Center 608-261-9555
345 West Washington
Avenue
Madison, WI
53703
Milwaukee Center 414-227-4181
101 West Pleasant
Street, Suite 211
Milwaukee,
WI 53212
You can file a complaint by writing to:
Department of Financial Institutions
Division of Securities
PO BOX 1768
Madison, WI 53701-1768
|
