Securities Law Glossary

A method of dispute resolution outside of court. Most brokerage accounts require FINRA arbitration for investor disputes.

When a broker or adviser fails to act in the best interest of their client. A common basis for FINRA arbitration claims.

Excessive trading in a client's account primarily to generate commissions. Proved through turnover ratio and cost-equity ratio analysis.

A pooled investment vehicle that raises a fixed amount of capital and trades on an exchange. Complex leverage structures often make them unsuitable.

Money awarded to restore the claimant to their financial position had the wrongdoing not occurred.

Financial Industry Regulatory Authority — the self-regulatory organization overseeing broker-dealers and administering investor arbitration.

Concentrating a portfolio excessively in one security or sector without proper disclosure. A common negligence claim.

A brokerage firm's failure to monitor and supervise its brokers. Firms can be liable when their brokers cause investor harm.

Mismanagement, valuation abuse, or breach of fiduciary duty in hedge fund operations causing investor losses.

Infrastructure investments often sold without proper risk disclosure. Illiquid and complex products frequently at issue in arbitration.

A false or misleading statement made by a broker to get an investor to buy a security. One of the most common FINRA arbitration claims.

A real estate investment trust not listed on a public exchange. Often illiquid, high-fee, and unsuitable — a frequent source of investor claims.

Failure to disclose a material fact to a client. Material omissions are just as illegal as misrepresentations under securities law.

A fraudulent investment scheme paying existing investors with funds from new investors. Often collapses when new investor funds run out.

Securities sold directly to investors without a public offering. High-risk, illiquid, and frequently sold to unsuitable investors.

Damages awarded to punish egregious conduct, in addition to compensatory damages. Available in FINRA arbitration for serious misconduct.

A business model that recruits members with promises of payments for enrolling others. Illegal and ultimately unsustainable.

Regulation Best Interest — SEC rule effective June 2020 requiring broker-dealers to act in the best interest of retail customers.

Securities and Exchange Commission — the primary federal securities regulator enforcing securities laws.

An individual who reports securities violations to the SEC. May receive 10-30% of sanctions over $1 million collected.

When a broker sells securities outside their firm's approved products. A serious FINRA violation and common investor claim.

The initial document filed by an investor in FINRA arbitration, outlining the facts, claims, and damages sought.

The requirement that a broker only recommend investments appropriate for a client's financial situation, risk tolerance, and objectives.

Executing trades in a client's account without their knowledge or approval. A clear FINRA violation.

An insurance product with investment components. High fees, surrender charges, and unsuitable sales make these the most litigated product in FINRA arbitration.