Financial Fraud Arbitration Cases Increased 43% in 2009

The number of plaintiffs filing financial fraud arbitration claims topped 7,000 last year, as more brokers and financial firms were hit with breach of fiduciary duty charges in the wake of the sub-prime mortgage debacle.

According to statistics released last month by the Financial Regulatory Authority (FINRA), arbitration claims skyrocketed in 2009, increasing 43% over the 4,982 cases filed in 2008. Breach of fiduciary duty was charged in 4,206 of those cases, making it the leading complaint filed last year. Misrepresentation and negligence were the next two most common charges, with 3,408 and 3,405 cases, respectively.

Mutual funds were the most common target of investor arbitration, with 1,556 claims filed against them. Many attribute the increase in filings to the collapse of the sub-prime mortgage market at the end of 2007. A number of high-profile stockbroker fraud arbitration claims have been won by investors who say that some funds which claimed to be conservative violated their prospectus by investing heavily in sub-prime mortgage financial products.

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FINRA is a non-governmental regulatory body that handles the resolution of disputes between investors and stockbrokers and other financial firms. It was created in July 2007 as a successor to the National Association of Securities Dealers, to arbitrate stock broker fraud claims that can include charges of breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.

The new numbers bear out a FINRA report released in July, which estimated that the number of claims would breach the 7,000 mark. In July, FINRA figures noted that investors were winning more cases in 2009. Through May, FINRA arbitration panels ruled in favor of awarding investors 47% of the time, as opposed to 42% during the same period last year. It remains to be seen whether that trend held steady throughout 2009.


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