What Happens if My Stockbroker Goes Out of Business?
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As reported in InvestmentNews, three Raymond James entities have agreed to pay over $15 million to resolve an investigation by the SEC. The settlement and SEC order focused on Raymond James’s actions in improperly charging certain clients advisory fees when the...read more
If your stockbroker suddenly shutters their business and can’t be reached, that may be a sign that they’ve done something very wrong. When a broker goes out of business, they normally move investments they’ve been managing to another firm. However, if they failed to follow rules or took your investments with them when they closed, they may have committed seriously unethical practices or even fraud. For help understanding your options and whether your money is safe, talk to a FINRA arbitration lawyer today. The FINRA lawyers at Epperson & Greenidge, P.A. are available for free consultations.
Is My Money Safe if My Broker Closed Their Business?
There are multiple safeguards in place to help protect your finances if your broker has to go out of business. Stockbrokers are human, and a broker may need to retire, may need to move, might get sick, or could even die. Brokers keep client funds safe and separate from their own, must keep money on hand to pay for errors or problems, and even effectively insure their client funds. This means that if your broker’s business ends, your money is probably okay.
The Securities Investor Protection Corp (SIPC) insures accounts for up to $500,000 to help protect investments from problems. If something serious were to happen that would harm your funds, this protection could step in. Additionally, if your investor were to commit an act of theft or fraud, the SIPC protection could reimburse you for up to $500,000.
If your broker knows they will be going out of business, they should transfer your funds to another brokerage firm. This can help ensure continuity of service and continue to leave you with a financial expert to help you care for your investments.
If your broker maintains your account and keeps your funds, they must have a certain level of money on hand to cover any potential problems. These kinds of brokerage firms, often called “clearing and carrying” firms or “carrying” firms, are required by SEC (Securities and Exchange Commission) rules to have enough net capital to pay for issues, should they arise.
If your broker goes bankrupt, the SEC and FINRA (the Financial Industry Regulatory Authority) both step in to help ensure investor funds and accounts are properly handled. These agencies help make sure that the accounts are kept separate from the company’s accounts, and that they are properly transferred to new firms for management. When transferring funds, the SEC and FINRA ensure that they are transferred to other institutions that also use SIPC protection to guarantee your funds.
What to Do if Your Broker Walked Away with Your Funds
Not every broker follows the rules when they close their business or go bankrupt. If your broker closed shop and took your money with him, you could lose that money. Additionally, if the broker intermingled your accounts with their own, your money could be at risk during the broker’s bankruptcy proceedings. These are serious issues and could be grounds for multiple claims against the stockbroker.
First, failing to properly handle your funds could be a breach of contract. The relationship between you and your broker is dictated by your brokerage agreement, which lays out steps the broker should take. This will often include statements about how your funds will be handled and kept. Violating SEC rules, FINRA rules, and the contract can often entitle you to compensation for your losses.
Failing to use the proper care and skill in managing your funds could be considered financial negligence. FINRA and SEC rules are in place to push brokers to manage funds and organize accounts in a particular way. Mishandling funds and falling below these standards is often sufficient to prove that the broker was negligent, which could entitle you to compensation for losses you face because of their incompetence.
Lastly, your broker may have closed or disappeared in a way that suggests they have literally stolen from you. This is illegal by federal and state law, but also violates FINRA rules and regulations. This could also be grounds to take the broker to court to seek compensation.
When taking a bad a stockbroker to court of your financial harm, you may be able to recover compensation for your claims. Through arbitration, a neutral third party (or panel of three of them) can award you damages and compensation for your trouble. The insurance mentioned before, through SIPC, may also be able to restore some of your accounts if the money was properly insured. Talk to an attorney today to explore your options.
FINRA Arbitration Against Cut and Run Brokers
If your broker took your funds, closed shop, and hid from the consequences, you may have multiple avenues to recover your investments. For a free consultation on your case, contact the FINRA claims lawyers at Epperson & Greenidge today. Our attorneys represent investors who have suffered financial harm from negligent or intentionally bad brokerage, and fight to get them compensation through FINRA. To schedule your free consultation, call us at (877) 445-9261.