Legal Definitions - Securities dispute resolution: Filing a complaint

Securities dispute resolution: Filing a complaint refers to the formal initial step an investor takes to begin an arbitration process against a financial professional or firm. This process typically involves submitting a detailed document, known as a Statement of Claim, to the Financial Industry Regulatory Authority (FINRA), outlining the investor's grievances and the compensation they are seeking.

FINRA is a private corporation that acts as a self-regulatory organization for brokerage firms and exchange markets. It is the largest independent regulator for all securities firms doing business in the United States.

The Statement of Claim serves as the investor's formal accusation. It must clearly detail the specific facts that led to their financial loss, identify the legal rights or industry rules they believe were violated, and specify the monetary damages or other relief they are requesting. In addition to the Statement of Claim, the investor must also submit a Submission Agreement, which formally indicates their agreement to resolve the dispute through FINRA's arbitration process, and pay the required filing fees. Once these documents are properly filed and fees paid, FINRA officially notifies the financial professional or firm involved, who then has an opportunity to respond.

• Example 1: Misleading Investment Advice for Retirement Savings

  An elderly couple, Mr. and Mrs. Chen, had their life savings invested in a conservative portfolio designed for income in retirement. Their financial advisor convinced them to move a significant portion of these funds into a highly speculative technology startup, promising rapid growth. The advisor failed to adequately explain the high risks involved and the illiquid nature of the investment. When the startup failed, the Chens lost a substantial amount of their retirement nest egg. To seek recovery, they would initiate the process by filing a complaint with FINRA. Their Statement of Claim would detail how the advisor's recommendation was unsuitable for their financial situation and risk tolerance, constituting a violation of industry rules, and would specify the amount of their financial losses.

• Example 2: Unauthorized Trading in a Brokerage Account

  Ms. Rodriguez, a busy professional, maintained a brokerage account with a financial firm. She had agreed with her broker that all trades over a certain amount would require her explicit approval. One month, she reviewed her statement and discovered several large, unauthorized trades in high-risk options that she had never approved, resulting in significant losses. To address this, Ms. Rodriguez would begin by filing a complaint with FINRA. Her Statement of Claim would meticulously list the unauthorized transactions, the dates they occurred, and the resulting financial damage, alleging that her broker violated their agreement and engaged in unauthorized trading, a serious breach of conduct.

• Example 3: Failure to Execute a Sell Order

  Mr. Davies instructed his broker to sell all of his shares in a particular stock once it reached a specific price target, which he communicated clearly via email and phone. The stock reached that target price, but the broker failed to execute the sell order. Subsequently, the stock's value plummeted due to unexpected market news, causing Mr. Davies to incur a substantial loss compared to what he would have received had the order been executed. To seek compensation for this oversight, Mr. Davies would proceed by filing a complaint with FINRA. His Statement of Claim would outline the specific instructions given, the broker's failure to act, the subsequent drop in the stock's value, and the quantifiable financial loss he suffered due to the missed opportunity to sell at the instructed price.