Stockbroker Fraud Arbitration Claims Continue Sharp Increase Over Last Year

The number of claims filed by investors over stockbroker fraud and other breaches of fiduciary duty continue to grow this year, according to the latest statistics released by the Financial Regulatory Authority (FINRA), which regulates more than 5,000 brokerage frims throughout the United States.

For the first five months of this year, the number of stockbroker fraud arbitration claims filed, which allege that money managers and financial firms mishandled investor money, increased by 85% over the same period of time last year, from 1,711 to 3,163.

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.

Investor arbitration complaints have spiked since the sub-prime mortgage market collapsed near the end of 2007. Estimates place the number of claims by investors seeking to recover losses on track to top 7,000 this year. By comparison, there were only 4,982 securities fraud arbitration claims filed for the entire year in 2008 and 3,238 filed in 2007.

Not only are there more claims, but more claimants are finding success in their investor arbitration cases, which may be attributable to new SEC rules enacted at the beginning of the year that restricts defendants’ ability to file a motion to dismiss. The rule was designed so that more claimants’ cases would receive hearings on their merits and to prevent defendants from attempting to delay hearings, increasing costs for investors and generally intimidating them out of arbitration.

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. The most common complaint has been breach of fiduciary duty, which accounted for 1,718 cases through May. A breach of fiduciary duty means that the representative did not act in the best interests of a client.

In the face of an increasing dim view of financial planners by the American public, investment planners asked Congress in April to create a national regulatory body to oversee their industry and create industry-wide standards. Currently, anyone can claim to be a financial planner, and do not need credentials as a Certified Financial Planner.