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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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