Common Mistakes Investors Make in Dealing With Brokers

Many investors sabotage their own cases unintentionally after they discover wrongdoing.  Your best bet is to contact an attorney immediately.

The worst thing you can do is write  a letter to the brokerage firm. That might  sound extreme, but it's the truth. We've seen  hundreds of cases where our clients have written  letters, and in only a few did the letters  not end up hurting their case. The brokerage firm often suggests writing a letter when an investor  complains. The brokerage firm ’s lawyers use  the letter in court or arbitration hearings  to limit the amount of money under dispute.  You shouldn't write a letter unless you are  completely sure of what you have lost and  what your claims are. The layperson usually  is unskilled in this type of endeavor; a lawyer  is required to craft a formal complaint in  the appropriate venue.

Recorded conversations are also bad. Brokers  are often coached on what to say in a recorded  conversation with their clients and to move  the discussion to get the client to say things  favorable to the brokerage firm.

Likewise, e-mails. There's a joke within  the legal profession that the "E"  in e-mails stands for evidence. People don't  think that when they write an e-mail that  it will later be used against them in an arbitration  proceeding. The general rule is: the  less communication, the better. Hire  an experienced attorney to communicate for  you.

Other mistakes investors make include:Continuing to check your account and actively  managing it once you suspect something is  wrong.

This is a common behavior. The brokerage firm can track your log-ins and will use frequent  checking of your account as evidence that  the investor is sophisticated. It weakens  your cases in an arbitration hearing. Likewise,  continuing to deal with your broker after  you suspect something is wrong can only hurt  you.

Listening to the broker's sob stories.

Brokerage firms are large companies. They have  plenty of money and plenty of employees.  They use the brokers' personal relationships  with clients to forestall client complaints.  They count on this personal bond to stop  from lawsuits. Falling for the sentimental  pitch hurts many investors.

The broker may plead with the investor to  not file a complaint because he could lose  his license. He may claim that he himself  lost money on the same investments. He may  try to talk about other investors who are  in the same boat or worse. He will almost  certainly try to give an explanation that  the market for that particular security fell,  beyond his control. These deceptive tactics  are designed to distract from the broker's  malfeasance and to stop or slow legal action  by the investor.

And make no mistake: even with the recent  trading scandals and government fines, the  brokerage firm's profits are up! These companies  are a long way from going out of business.  They are making  more money than ever. You as an investor sue  the brokerage firm, not the individual broker.  The brokerage firm had a responsibility to supervise  the broker.

It's also not necessarily true that individual  brokers lose their jobs when they lost arbitration  cases. Brokers can continue to operate even if they have numerous cases filed  against them.  We have seen brokers with over a dozen cases  and complaints continue to operate with their  licenses.

Feeling guilty

Many investors are ashamed of losing money.  Even if they are victims of bad brokers, they  feel guilty and stupid. As part of their damage  control tactics, the brokerage firms encourage  this investor guilt by saying "you wanted  us to buy their stock". Don't feel guilty  if you were a victim!

Investors often rationalize their losses to themselves by thinking that everyone is in the same boat.  Well, everyone loses money if the market  goes down, right? Yes, but not everyone is  a victim of fraud. There's a difference between  losing money in down market and suffering  from broker misconduct. 10,000 claims are  filed by attorneys in the securities industry  per year.

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