Can I Sue My Stockbroker?
What an investor can do when a broker’s conduct, not the market, caused the loss: the claims that exist, where they are brought, and the time limit that applies. Nationwide.
The short answer is that an investor with a claim against a stockbroker usually cannot sue in court, because the account agreement requires FINRA arbitration, and usually does not need to, because arbitration is where these claims are decided. The longer answer is that a loss alone is not a claim. The claim is the broker’s conduct: a recommendation that did not fit the investor, trades the investor did not authorize, trading that served commissions rather than the account, or a misstatement about what was being sold.
Industria Business Lawyers represents investors nationwide in FINRA arbitration claims against brokers and the firms that employ and supervise them. This page sets out the conduct that supports a claim, the rules it is measured against, and how the process works, using the FINRA rules as they read today.
Every case is different, and not every loss supports a claim. The account records, not the size of the loss, decide whether one exists.
The Conduct That Supports a Claim Against a Broker
FINRA rules set the standards a broker and a firm are measured against. These are the ones that come up most.
Unsuitable Recommendations
FINRA Rule 2111(a) requires a member or associated person to have a reasonable basis to believe that a recommended transaction or investment strategy is suitable for the customer, based on the customer’s investment profile, which includes age, other investments, financial situation and needs, tax status, investment objectives, investment experience, time horizon, liquidity needs, and risk tolerance. A recommendation that ignored that profile is the most common basis for a claim. Our unsuitable investment claims page covers it in depth.
Unauthorized Trading
FINRA Rule 3260(b) provides that no member or registered representative shall exercise discretionary power in a customer’s account unless the customer has given prior written authorization to a stated individual and the account has been accepted in writing by the firm. Trades the investor did not approve, in an account without written discretionary authority, breach the rule regardless of how the trades performed.
Excessive Trading
FINRA Rule 3260(a) prohibits a member from effecting, in a discretionary account, transactions that are excessive in size or frequency in view of the financial resources and character of the account. Rule 2111’s quantitative suitability obligation reaches the same conduct in non-discretionary accounts where the broker controlled the trading. Commissions and turnover in the account statements are the evidence.
Misrepresentation and Omission
FINRA Rule 2020 provides that no member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance. A broker who misdescribed the risk, the liquidity, or the nature of what was sold has breached it. Rule 2010 separately requires members to observe high standards of commercial honor and just and equitable principles of trade.
Selling Away and Outside Investments
A broker who sold an investment that was not offered through the firm is governed by Rule 3280, which requires written notice to the firm and, where the broker was compensated, the firm’s written approval and supervision. Our selling away claims page covers the claim against the broker and the firm.
The Firm's Failure to Supervise
FINRA Rule 3110(a) requires each member to establish and maintain a system to supervise the activities of each associated person, reasonably designed to achieve compliance with securities laws and FINRA rules, with final responsibility resting on the firm. The claim against the firm matters because the firm, rather than the individual broker, is usually the party with the means to pay an award.
Arbitration, Not Court, and Why That Is Not Bad News
The forum is set by the rules and the account agreement, and the customer holds the right to invoke it.
The rule. FINRA Rule 12200 provides that parties must arbitrate a dispute under the Code if arbitration is required by a written agreement or requested by the customer, the dispute is between a customer and a member or associated person, and the dispute arises in connection with the business activities of the member or associated person. Nearly every brokerage account agreement contains that written agreement, so a customer can require the firm to arbitrate whether or not the firm agrees.
What it means in practice. The claim is filed with FINRA rather than a court, decided by arbitrators rather than a judge or jury, and resolved by an award that Rule 12904 makes final and not subject to review or appeal within FINRA. Our how to file page covers the filing and our worth it page covers what to weigh first.
The time limit. Rule 12206(a) provides that no claim is eligible for arbitration where six years have elapsed from the occurrence or event giving rise to the claim, and the panel resolves eligibility disputes. Rule 12206(b) provides that dismissal under the rule does not prohibit pursuing the claim in court.
Advisers who are not brokers. A registered investment adviser that is not a FINRA member is outside the Code, and claims against it go to whatever forum the advisory agreement provides. Our financial advisor page covers that distinction.
Next question: What is FINRA arbitration? Then: How long does FINRA arbitration take?
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How We Evaluate a Claim Against a Broker
Account statements, trade confirmations, the account agreement, the new account form with the investment profile, and every communication with the broker.
Each recommendation and each trade against Rules 2111, 3260, 2020, and 2010, separated from ordinary market loss.
The occurrence or event giving rise to the claim against the six year limit in Rule 12206.
What the firm’s supervisory system under Rule 3110 was designed to catch, and what its own records show it knew.
The loss caused by the conduct, calculated in the way arbitration panels expect, and where it sits against the simplified arbitration threshold under Rule 12800.
A plain answer: file, do not file, or gather more first, with reasons.
The statement of claim, arbitrator selection, discovery, hearing, and award, with the investor informed at each stage.
FAQ
01 • Investors Can I sue my stockbroker in court?
Usually not. Rule 12200 and the account agreement require arbitration before FINRA of disputes between a customer and a member firm or its associated persons arising from the firm’s business. A claim dismissed under the six year rule may be pursued in court under Rule 12206(b).
02 • Investors My broker lost me money. Is that enough?
No. Markets fall and investments fail without fault. A claim needs conduct that breached a rule or duty: an unsuitable recommendation under Rule 2111, unauthorized trading under Rule 3260, a misrepresentation under Rule 2020, or a supervisory failure under Rule 3110. The records show whether that conduct occurred.
03 • Investors Can I claim against the firm as well as the broker?
Yes. Rule 3110 places final responsibility for supervision on the firm, and Rule 12200 covers disputes with the member firm. The firm is usually the respondent with the means to pay an award.
04 • Investors How long do I have?
Rule 12206(a) makes a claim ineligible for FINRA arbitration once six years have elapsed from the occurrence or event giving rise to it. Which event starts the clock is often disputed and the panel decides it. State and federal limitation periods can also apply to the underlying claims.
05 • Investors What if the broker was really an investment adviser?
Registered investment advisers that are not FINRA members are outside the FINRA Code, and claims against them go to the forum the advisory agreement names. Many individuals are dually registered, so which capacity they acted in for the transaction in question is the first thing to establish.
Investors nationwide. Call (202) 860-1210 or send your statements and account agreement through the form. Free consultation. Every case is different, and not every loss supports a claim. We will tell you whether yours does.
This page provides general information about investor claims against brokers under FINRA rules and does not constitute legal advice. Reading it does not create an attorney client relationship. FINRA rules cited were read on the date this page was last updated and are subject to change. Whether a particular investor has a claim depends on the specific facts, and past outcomes in other matters do not predict the result of any claim.