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It can be difficult to recover assets lost to fraud or other scenarios in which an investor has experienced a problem with an investment. But there are legitimate ways to attempt recovery. In most cases, you can do so on your own -- at little or no cost.
Arbitration or mediation
Investors can file an arbitration claim or request mediation through FINRA when they have a dispute involving the business activities of a brokerage firm or one if its brokers. To be considered, the alleged act resulting in a claim must have taken place within the past six years. Arbitration can be a faster, cheaper, and less complex option to recover money rather than going to court.
You may want to hire an attorney to represent you during the arbitration or mediation proceedings to provide direction and advice. If you cannot afford an attorney, some law schools provide legal representation through securities arbitration clinics. These services require modest filing fees depending on the size of the claim. However, FINRA may grant financial hardship waivers when warranted.
Restitution from SEC and FINRA enforcement actions
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Both the SEC and FINRA are authorized to take enforcement actions that may include financial restitution for investors. The SEC maintains a page with information for harmed investors. It contains a list of enforcement actions that, in some cases, include funds paid by defendants or respondents to satisfy a judgment. Distributions may be administered by the SEC staff, a receiver, or a third-party fund administrator that has been appointed by the Commission or court.
Enforcement actions by FINRA might also include payments to investors. Distributions may be administered by FINRA staff, the securities firm itself under FINRA oversight, or a third-party administrator appointed by FINRA.
Investors entitled to a recovery of funds will likely receive a communication by the regulatory body or appointed party in advance of any asset distribution. Be aware that fraudsters may impersonate FINRA, the SEC or other government organizations in an attempt to build credibility with those they hope to defraud.
The Fair Fund provisions of the Sarbanes-Oxley Act of 2002 give the SEC authority to distribute financial penalties to injured investors. The SEC maintains a list of cases involving Fair Funds and Disgorgement Plans.
The Securities Investor Protection Corporation (SIPC) also provides limited protections to investors. SIPC is a non-profit, non-government membership corporation, funded by member broker-dealers. Specifically, if a firm that clears securities trades (a clearing firm) becomes insolvent or otherwise financially incapable of returning the customer's property, it is SIPC's responsibility to make sure the customer's cash and securities are returned, within limits specified by law. SIPC's coverage also extends to firms that sell stocks and bonds to the public (introducing firms). Coverage includes limited protection against unauthorized trading in customers' securities accounts, which can include unauthorized trading by persons associated with the introducing firm, and may be available even if the clearing firm, but not the introducing firm, is still solvent. SIPC does not protect against market risk, such as when the value of a stock declines. Again, be wary of fraud associated with the SIPC name. SIPC notes that fraud is real and impersonators may try to pose as SIPC in an attempt to defraud investors.
Investors may also be eligible to participate in class action lawsuits. Check the Securities Class Action Clearinghouse to find out whether a private class action lawsuit relating to a given investment has been filed. Also, it may be possible to recover funds from companies that have filed for corporate bankruptcy, a process that is handled through the courts. A company's reorganization plan will provide details about what an investor can expect to receive, if anything, from the company.
Someone chooses you
Regulators often warn consumers to be wary of unsolicited offers, and this holds true for offers to help you recover investment assets. As with any service, carefully check out the firm and individuals before you commit to a service or advance fee, especially if they contact you first.
Use FINRA BrokerCheck to see if any individuals who are now operating arbitration services have worked in the securities industry, and if they have any regulatory events disclosed to regulators. Be wary of individuals who have been barred from the brokerage industry who are now offering asset recovery services. Anyone barred from the securities industry cannot represent clients in securities arbitrations.
Use the American Bar Association's Consumers' Guide to Legal Help to find legal resources, including lawyer licensing information in your state. Disbarred attorneys cannot represent clients in securities arbitrations. FINRA cannot recommend a lawyer, but it offers tips and resources to help find and research an attorney.
Recovering money from investment losses or fraud can be difficult and time-consuming. But using the options above -- and learning to spot fraudulent pitches -- can help ensure that attempts at recovery do not result in additional financial loss.
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