Public Investor's Dispute Resolution Process & Procedures Center
.......Updated 3/17/2000, 3/23/2000, 3/03/2001

(Underlined italicized text represents the latest additions to this training guide. Underlined text represents the previous additions to the training guide)

Modern public securities investment and trading is a fast paced complicated process. Although modern technologies in communications and Internet processes facilitate the process and makes it appear easy it is an extremely complicated and sophisticated process. Trades are placed and executed in a complicated environment and set of arrangements. There are many steps along the way for human error, human discretion and indiscretion, manipulation, greed, fraud and outright thievery to occur. Tremendous amounts of monies are involved and changes hands every second. The public securities markets now involve many foreign collaborations between the U.S. markets and other large and small Foreign exchanges. There are a multitude of laws and rules and regulations at every level of the process. These laws and regulations are necessary to protect investors rights, and provide security and some certainty and predictability of operations within the markets. Just as it behooves the investor to learn the art and science of investing and watching his own money, it is essential that investors understand as much of these rules, regulations and processes as possible. Understanding these processes will not only increase the ability to resolve disputes but will many times prevent disputable situations from occurring.

Since it may not be possible for every investor to attain the proficiency of a securities lawyer, there are certainly many situations where it will be advisable to retain the services of a securities lawyer. However many disputes can be effectively and quickly handled by a knowledgeable investor utilizing the quick and simple tools offered in this Dispute Resolution Center. The Securities and Exchange Commission & the major securities exchanges have put in place excellent dispute resolution processes. They have established requirements for operations of brokers and market makers. These processes however can be easily forgotten and put aside particularly if you are engaging the assistance of the major middle man in the process, your broker. Brokers carry a significant amount of the liability and responsibility to resolve these disputes on the front end. However their policies and employees are used as the first line of resolution and defense in dealing with the problems. They would obviously like such problems to go away rather than face them. They usually attempt to get rid of the problem by pacifying you into the belief that they have done some type of review and everything turned out okay. Most of the disputes investors will encounter involves improper execution of orders to buy or sell securities. the following list identifies some of the major problems

1. The order to buy or sell was never filled.
2. The order was not timely filled.
3. The order was filled at to high a price when buying.
4. The order was filled at to low a price when selling.
5. The records and accounting provided by the brokerage is wrong.
6. The broker gave you wrong and misleading advice or information.
7. The broker did not carry out your instructions as given.

Modern securities traders will unfortunately encounter such problems almost on a daily basis if they trade frequently enough. It is essential therefore that the modern trader have some quick and easy dispute resolution procedures in his arsenal to deal with such ubiquitous problems.

It is important to realize that there are usually two major players in any order based transaction, the broker who takes and transmits the order, and the market maker which is usually an indepedent company that actually executes the order. The broker decides which primary market maker they use. Many times there may be more entities involved in any particular trade order flow.


Step One

The first step to resolution of these problems is to file a challenge by calling the brokerage and speaking to a customer service representative or manger. this step is very often useless but it is necessary because it is the fastest way to resolve a problem. it sometimes resolves the problem very quickly and allows the investor to move forward with the main business of investing. Unfortunately this step will not usually work unless there is some major glaring fault on the part of the broker or the market maker. It is important at this step to get and record as much information as possible. Here is where you start accumulating and organizing your records. you should have a special record keeping file for all documents that you come by during your trading activities. The following information should always be recorded and saved:

.....The names of the individuals spoken with
.....The name of the broker and his/her company
.....The name of the particular market maker and his/her company.
.....The times and places of any important events.
.....All order and trade confirmations need to be printed and kept.
.....Your online brokerage accounting screens listing your trade history, account balances, positions etc.should be viewed and printed at least once a day. This is extremely important because these brokerage accountings can easily be changed by the broker to reflect their opinion of your account transactions after the fact. The contemporaneous online accountings can serve as important evidence and notices of situations and irregularities in the account.

During contacts with the broker or market maker is extremely important to be courteous and non-accusatory during your communications, however let them know that you will need to follow up on the inquiry if their assistance does not produce the desired results. You will be told by some brokerages that there is no way to followup or file any complaint against the brokerage and market maker on OTC:BB transactions. They do this to try and persuade you not to go further with your inquiry after they have looked into it. At this point you must request the address of the Compliance Department and advise them that you will be filing a complaint with the compliance department at this time it is also important to get the name of the contact or "Order Flow" person that was used to take the order and /or the name of the individual market maker who handled the transaction at the market making company. Sometimes they will tell you they do not have this information. During any conversations with the broker it is important that you write down anything that is said in the conversation. Remember they record some of these conversations so keep what you say to a minimum. Your job at this point is to get them to seriously look into your inquiry and to collect information from them. You should ask any questions you need to at this point and write down their response. Do not try to demonstrate your knowledge and expertise, and never mention the words "lawyer or Attorney". It is important that you have them respond to your initial inquiry in as free and open a manner as possible.


Step Two

Next you must file a written complaint with the brokerage firm. The telephone contact with the brokerage will probably advise you to file this written request with their customer service department or some other department with less authority than their Compliance department. They do this because to get you partially into the system but not really at the big door. It is probably advisable to do this however once they reply in writing or by e-mail as they often do, you must then be prepared to quickly move to step three. Some times this step becomes the formal complaint to the Compliance department because the brokerage will advise you that there is nothing more they can do. Generally however you should give the customer service depart one more chance to resolve the situation by a written request. Sometimes this will put them on notice of how seriously you consider your complaint and they will do a better job at attempting to resolve it. Again the importance of trying to get the customer service department, or management to resolve the situation is saving time. Many times however they will forward such written requests to the Compliance department.

Discovery
A most important part of this step is the written request for discovery of important and relevant information. This is where you make your first written request for important information that you do not have, need, or want to collect in case you need it later. This is a very important request in every step of the process from this point on. At every step ion the dispute process you must make a list of potential questions which you need answered. Remember information is always the key to success and they are duty bound to provide any relevant information about the transaction and process, particularly when you make that request in writing. It also advises them of how serious and efficient you are about your inquiry and complaint.
Some of the questions you may need information on are:

Name of all individuals in the "Order Flow" chain (Order Flow is the term commonly used in the industry to describe the individuals who handle the transaction at the market maker level, or the process that actually gets the trade executed).

All dates and times involved in the transaction, and in the dispute process.

A description of the Broker or Market Makers internal dispute resolution process.

Actual copies of all reports given and received by the broker or market makers in the transaction or containing the transaction. This includes any reports required for the market maker to keep about the receipt and execution of trades in an around the time of the instant transaction.

Copies of all correspondence between broker, and market makers, and between market makers involving the instant transaction.

Any other relevant information which may be helpful.

You can use the Broker/Market Maker Inquiry & Challenge Form to file your complaint and requests in this step.


Step Three

Step three requires the filing of a formal complaint with the Compliance department of the brokerage Firm. We have attempted to list the Compliance department addresses of the main brokerages, however it is essential that you call the offending broker and get the current proper address. The Compliance department is the place where they really start to take your complaint seriously. This is essentially as close as you will get to their legal department before seeing them at a mediation, arbitration or in Court. With your submission of your claim to the Compliance department you will inform them that you are also simultaneously taking steps required in step four of this process. this lets the compliance department know that the cat is already out of the bag and hopefully they they move more quickly. remember that time is always an issue. You want to resolve these things as quickly as possible. unfortunately if you get to this level the dispute will start to take more time to be resolved because you now have more formal and legalistic processes being invoked at the brokerage level. Remember that legalistic processes mean more time.

You can use the Broker/Market Maker Inquiry & Challenge Form to file your complaint and requests in this step. Address the Complaint to the Compliance department of the Broker or Market Maker Company.


Step Four

Step Four is contemporaneous with Step Three. Step Four is the filing of formal complaints with entities other than the brokerage. Here is where you file and independent complaint with the compliance department of the market maker, the national association of securities dealers (NASD), the securities and exchange Commission (S.E.C.), Your State securities Commission, and any other securities exchange which may be involved with the Transaction.

If you believe that you have been defrauded by a broker/dealer, brokerage firm, investment advisor, or other industry professional, you may choose to file a customer complaint or a regulatory tip with NASD Regulation

NASD excerpt.......

Who should file a customer complaint?

A "customer complaint" may be filed by a customer, or person acting on behalf of a customer, who feels they have been subjected to improper business practices involving their broker or brokerage firm.

Who should file a regulatory tip?

A "regulatory tip" may be filed by an investor, industry member or professional who is aware of instances of unfair practices, fraud, or abusive conduct involving brokers or brokerage firms.

If you are aware of unfair practices or specific instances of abusive conduct, NASD Regulation wants to know about it immediately. Often, violations of our rules and the federal securities laws come to light through the receipt and investigation of regulatory tips from investors, members of the industry, and other industry professionals.

You have several options when filing a regulatory tip. You can send an Internet complaint using our Regulatory Tips Form (see notice below) or you can send a regulatory tip to the NASD Regulation District Office nearest you. Also, in situations where time is of the essence or you feel that you need immediate contact, you may call the NASD Regulation District Office nearest you.

NASD Regulation may find it useful to contact you, for the purposes of verifying the information provided and soliciting additional information. While anonymous regulatory tips will be accepted and reviewed, their value may be diminished if NASD Regulation is unable to conduct this additional inquiry.

It is requested that you provide a brief summary of the significant types of abusive conduct and/or rule violations that:

  • you believe to have taken place,
  • you believe may now be occurring, and/or
  • you believe may be about to occur.

It is also asked that your summary, to the extent possible, provides the names of the involved parties, their roles and their relationships, the securities associated with this matter, and the time periods or dates applicable to these events.

If you are in possession of written materials or other documentation that supports this regulatory tip, NASD Regulation staff will ask for this information following the receipt and review of your regulatory tip.

All regulatory tip information received will be treated in confidence to the fullest extent possible. NASD Regulation, however, cannot guarantee that during the course of a related investigation or possible prosecution of the matter that the identity or documents of the source of a regulatory tip will not become known.


See also
How the SEC Handles Your Complaint

You can use the Regulatory Tips Form, NASD Complaint Form, SEC Complaint Form to file your complaints and requests in this step. State Securities Complaints should follow the information in the Forms Section below.


Step Five

Step five involves filing a request for mediation or arbitration. The NASD Regulation information is essential in filing and understanding these processes. Follow these links:
NASD Mediation
NASD Arbitration Procedures for Investors


Step Six

Step Six requires filing a lawsuit. Here you will need to acquire a lawyer with expertise in the particular area of concern.


Forms To Utilize in the Dispute Resolution Process

Broker Contact Form.....Use this form to record information when you are contacting brokers or any securities, private or public investment opportunity.
Broker/Market Maker Inquiry & Challenge Form ....This form can be filled out online printed and mailed into the broker, or printed blank and typed or handwritten. It can also be used in filing the Broker Compliance Complaint when addressed to the broker's Compliance Department.
Broker Compliance Complaint
Send to the Compliance Department of the specific Brokerage Company a written document (or the Broker/Market Maker Inquiry & Challenge Form above) setting forth the details of the dispute, including all relevant dates and names, in a clear, concise, and chronological fashion and should conclude by indicating what relief (e.g., money damages in a specific amount, performance of a particular agreement, interest, etc.) is requested. The claimant should attach copies of documents and supporting materials as exhibits to the Statement of Claim.
Market Maker Compliance Complaint
Send to the Compliance Department of the specific Market Maker Company a written document (or the Broker/Market Maker Contact Form above) setting forth the details of the dispute, including all relevant dates and names, in a clear, concise, and chronological fashion and should conclude by indicating what relief (e.g., money damages in a specific amount, performance of a particular agreement, interest, etc.) is requested. The claimant should attach copies of documents and supporting materials as exhibits to the Statement of Claim.
Regulatory Tips Form
NASD Complaint Form
SEC Complaint Form
State Securities Complaint.... Send to your specific State Securities Regulator a written document setting forth the details of the dispute, including all relevant dates and names, in a clear, concise, and chronological fashion and should conclude by indicating what relief (e.g., money damages in a specific amount, performance of a particular agreement, interest, etc.) is requested. The claimant should attach copies of documents and supporting materials as exhibits to the Statement of Claim.
Mediation Reques Form
Arbitration Request...... File a written Statement of Claim - File with the Director of Arbitration a typewritten or printed document stating the claim. This document should set forth the details of the dispute, including all relevant dates and names, in a clear, concise, and chronological fashion and should conclude by indicating what relief (e.g., money damages in a specific amount, performance of a particular agreement, interest, etc.) is requested. The claimant should attach copies of documents and supporting materials as exhibits to the Statement of Claim. The claimant should provide sufficient copies for each party, the arbitrators, and the self-regulatory organization.


For SEC answers to some specific questions to dealing with disputes click the following:

Questions? Complaints? Search Key Topics for Fast Answers


Other Important Dispute Resolution Information
The Stock Detective .....A good general site on stock scams
Stock Fraud Samples ....Study these cases of SEC documented violations to understand & avoid scams
An Inside Look at Broker Arbitration
An Inside Look at Securities Class Action Litigation
How U.S. Laws Can Help Non-U.S. Investors

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