FAQs

How do I know if my broker caused my losses?

Oftentimes a stockbroker will claim that losses are due to the market or that they will bounce back.  Sometimes this is true.  Unfortunately, sometimes the losses are the stockbroker’s fault and your investments will not recover when the market gets better.  It is always better to call us and ask.  Waiting can result in being barred by certain state, federal or regulatory statutes of limitation.

How much do you charge?

We do not charge anything for our initial consultation. If we decide to take your case, we can take it on a contingency fee basis or hourly. For contingency fee cases, we do not charge our clients for our time unless we win. In that case, we take a percentage of the recovery to pay for our time and effort on the case. We will also advance payment of all case expenses incurred in your prosecuting claims such as filing fees, copying and mailing costs, and research fees. If you recover money as a result of the work that we perform, you will repay us for the amounts we have advanced in payment of case expenses. You do not owe us for our time or case expenses if we lose. For hourly cases, we get paid an hourly rate regardless of the outcome. We will work with you to decide what the best method of payment is.

How much time do I have to file a claim?

If you have suffered investment losses, it is important that you contact an attorney immediately.  State, federal and regulatory statutes of limitation may apply to your claims.  This means that even if you have a viable claim, you may be barred from bringing it because you waited too long.  Conversely, just because it has been a long time, does not necessarily mean that you are barred.  Please contact us immediately, to discuss whether you have a timely claim.

Do I have a choice between arbitration and court?

In most cases, unfortunately, you have no choice between arbitration and court.  Most large brokerage firms put an “arbitration selection clause” in their contracts.  It is likely buried among several pages of legalese in the contract you signed to open an account.  Courts have decided these arbitration selection clauses are valid.  So, if you wish to bring a claim against your broker or a broker-dealer firm, you will probably have to do so in FINRA arbitration.

What is FINRA?

Finra is an acronym; it stands for the “Financial Industry Regulatory Authority.” FINRA is the super-regulator that was created when the old NASD (the “National Association of Securities Dealers”) merged with the regulation, enforcement and arbitration arms of the New York Stock Exchange (NYSE). FINRA now serves as the primary regulator for brokerage firms in the United States, and importantly, it hosts the arbitration forum where our clients bring disputes against their brokerage firms.

What is FINRA arbitration?

FINRA, or the Financial Industry Regulatory Authority, is the forum in which most brokerage firms require customers to arbitrate. Arbitration is much like a court proceeding.  There is a panel of three arbitrators that act as judge and jury, opening and closing statements and witness testimony with direct and cross examinations. The main differences are that FINRA arbitrations are generally shorter and less expensive than court and there is no traditional appeal process. At the end of the proceedings, the arbitrators will make a decision that is final and binding, meaning it cannot be overturned except under extreme or unusual circumstances.

What types of investment cases do you take?

We take all types of investment cases where an investor lost money.  Some cases that we have taken in the past or are currently investigating include the following products: variable annuities, viaticals, real estate investment trusts or “REITs”, tenants in common or “TICs”, limited partnerships, investment fraud, including Ponzi schemes, structured products, options, margin, oil and gas partnerships, collateralized debt obligations or “CDOs”, collateralized mortgage obligations or “CMOs”, hedge funds, private placements, leveraged exchange traded funds or “ETFs”.  Some of these cases had to do with broker fraud or misconduct including Ponzi schemes, churning, unauthorized trading, misrepresentations and omissions, overconcentration, breach of fiduciary duty and negligence. If you believe you have lost money due to bad investment advice or misconduct, please contact us, we may be able to help.

What is a Ponzi Scheme?

A Ponzi Scheme is a type of pyramid scheme in which a con artist takes money from new investors in order to pay back old investors.

For example, someone could say to you, "I have this great investment and it's going to give you incredible returns." You then give them money, but they don't actually invest it in anything; instead, they give you distributions and pay back your principle with your own money. When your own money runs out, they have to find new investors so they can use their money to pay you and prolong the illusion that you are profiting from the original investment you made. They have to keep finding more and more people to pay back the previous peoples' investments, and so the scheme grows until all the money is gone, at which point it collapses under its own weight.

What is the SEC?

The "SEC" is the United States Securities and Exchange Commission. It was created by the Securities and Exchange Act of 1934, and it's the federal agency that is tasked with regulating securities laws in the United States.

What Sets Chapman LLC Apart?

We’re a small firm, but we’re very focused on representing investors who have fallen victim to fraud, and we take a lot of pride in giving individual attention to every client and being very responsive to their concerns. We have been at this a long time, and over the years, we’ve tried many investment fraud cases. We are unafraid to go toe-to-toe with any financial services firm in this country, and we’ve done that again and again, proving not only our willingness, but our ability to get justice for our clients.

What is a "Pump and Dump" Scam?

A pump and dump scheme is a fairly common species of fraud. The movie "Wolf of Wall Street" is a great example: essentially, the promoters take a small business operation and create the illusion that it's much more valuable than it really is in order to attract investors. You may have heard the expression, "sell the sizzle, not the steak," and that's what a pump and dump scheme is all about - not the reality, but the perception. Over time, it builds on itself as more investors come in due to the "buzz" and the illusion that they're getting in on the ground floor. Eventually, the scheme collapses and the only people who make it out are the promoters, while the investors suffer the loss.

What Is The Most Common Fraud Red Flag?

Many investors are looking for guarantees – not necessarily a rocket investment that will bring great riches, but something that’s steady, that they can count on, that can be used to plan. There are no guarantees, but unscrupulous brokers, investors and advisors often bend that rule and promise a guaranteed rate of return on investment when there is no such thing. It’s an improper claim that the investment is guaranteed, and the investor should run in the other direction.

What Are Some Ways to Avoid Investment Fraud?

Folks that are successful at perpetrating frauds: swindlers, fraudsters, they all have one thing in common; they’re con-men and they make you like and trust them. You cannot trust your own instincts when you’re trying to size up an investment opportunity. You have to know who you’re dealing with, and the best way to do that is to ask questions and do your homework before you sign any papers. Go online to the FINRA BrokerCheck®, and find out whether or not the person you’re dealing with is licensed in the first place; and if the broker is licensed, find out where he’s been. Find out if there have been complaints or regulatory actions brought against him, if this person is someone who’s trustworthy. If he isn’t, you shouldn’t trust anything he tells you.

What is Margin Trading and Why is it Risky?

Here at ChapmanAlbin, we talk to folks every month about the problems and losses they’ve experienced as a result of investing on margin. If you’re not careful, margin trading can destroy your net worth. Allow me to explain what it’s all about.

Trading “on margin” just means you’re investing with money you borrowed from your brokerage firm. The brokerage firm loans you money on margin so that you can invest it in the stock market. If you have $100,000 invested with your brokerage firm, you can offer those investments as collateral for a loan.

It sounds great, right? Not so fast. Margin trading is complicated and incredibly risky for you, the investor. It’s never particularly risky for your brokerage firm – they rake in extra commissions when you invest the money they lent you. They also charge you a high interest rate on that money. If the market tanks and you lose the money you borrowed on margin, you’ll be personally on the hook to repay it all. The brokerage firm always gets paid, with interest. You, the investor, don’t have the same guarantee.

Think about this: with margin trading, you can lose money even if you made a moderate gain on your investments. You may be asking, “How could I lose money in an up market?” The answer lies with the high margin loan interest rates. Remember, you’re paying the brokerage firm interest on the money it loans you. If your loan costs are higher than your investment returns, you’re losing money.

Right now, margin interest rates are as high as 9%. So, if you have $100,000 out on margin, you’re paying your brokerage firm $9,000 per year in margin interest – meaning your investment would need returns that exceed 9% to make more money than if you had invested the original $100,000 without margin. That is a high hurdle: equities have only returned about 7% on average over the past 70 years.
In addition to these tough odds, you, the investor, have to personally guarantee that you will repay every penny of the margin loan, with interest. If the stock market tanks and the values of the securities you pledged as collateral drop below your loan balance, the bank will make a margin call, forcing you to bring it back up to the required amount immediately.

Let’s say in a down month, your $200,000 in investments have lost 20%. Now your account is worth $160,000, and you only have $60,000 in collateral ($160,000 minus the $100,000 that you borrowed). The bank will make a margin call requiring you to bring your collateral back to $100,000 to cover the loan. One way you can do that is by simply depositing $40,000 in your account, but most people don’t have a spare $40,000 laying around, so instead, they have to sell $40,000 worth of the investments they borrowed on margin in order to bring the collateral back to $100,000.

And don’t forget: every month your returns don’t beat the interest rate, your account continues to go down in value. As it does, you’ll have to keep meeting margin calls, and the returns you need just to meet the interest payments will keep going up. A single down month can have catastrophic consequences, causing losses in your margin account to snowball. In a worst-case scenario, you can end up losing your original $100,000 and owing $100,000 to the brokerage firm for the loan. You, the investor, are responsible for repaying that money immediately. There is no payment plan and no ability to negotiate terms. Brokers can take you to court in order to seize your other holdings and satisfy the loan. That is why margin trading is almost always a bad idea for the average investor – it can quickly lead to a financial disaster.