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AdobeStock_16747416-300x221Many employers provide 401k plans for their employees.  A 401k plan is a retirement savings plan where employees can save a portion of their pre-tax earnings. Taxes aren’t paid on the money until it is withdrawn from the account.

Some, but not all, 401k plans permit employees to take out a loan against the 401k. Just because you can, doesn’t mean you should.  Here are the main things to consider before you take a loan against your 401k account.

Loans against 401k accounts come with all of the same formality as any other type of loan. There will be a loan agreement that sets forth the terms of the loan, the interest rate, and any fees associated with the transaction. Just because you are borrowing your own money, don’t assume you will get a great deal on the interest rate. The interest rate you will be charged will be comparable to the rate a conventional lender would charge for a similar-sized personal loan.  If you have poor credit, however, you may get a better interest rate than you would at a bank.

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As contingency fee lawyers, we evaluate a steady stream of potential securities fraud cases.  We meet with investors of all ages and backgrounds who have been cheated, defrauded and tricked into making bogus investments.  We evaluate far more cases than we agree to take.

One of the most difficult types of cases that we evaluate is the so-called alternative investment case.   Alternative investments are not traditional stocks or bonds purchased through a normal brokerage firm.   Instead, these investments are offered directly by a promoter of some business scheme, perhaps an oil well, a gold mine, a real estate development, or some brand new technology.  The promoter offers the chance to get in on the “ground floor” and make enormous profit.

The alternative investment can take the form of a limited partnership interest, an LLC interest, or some other portion of a small, non-publicly traded business entity.  The investor does not get normal account statements, like a regular brokerage firm.  Instead, the investor gets a K-1 at the end of the year for tax purposes and perhaps a regular newsletter on how the gold mine, oil well (or whatever) is doing.  It’s almost always doing great!

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FINRAFINRA has released its annual examination priorities letter.  The letter identifies the specific areas FINRA will be focusing on when it conducts examinations of its member brokerage firms in the coming year. According to FINRA, the list is developed based on trends it has seen in the previous year, as well as concerns expressed to FINRA by brokerage firms, investor advocates, and other regulators.  In 2017, FINRA has said it will pay particular attention to the following items, among other things:

High-Risk Brokers

Statistics show that brokers who have committed misconduct against customers are more likely to commit additional violations in the future. FINRA will closely examine the supervisory procedures of brokerage firms who hire or retain brokers with a significant history of prior sales practice complaints. Specifically, FINRA will be checking the adequacy of the firm’s procedures to detect and prevent future misconduct by recidivist brokers.

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AdobeStock_78797750-300x199It’s your money.  You worked hard to earn it. It’s taken years to save it. Now you need to protect it. Here are some tips to help you make more informed investment choices and protect yourself from investment scams.

  1. Check out the “salesperson.” Just because someone says they have a securities license doesn’t mean it’s true. We recently had a potential client call with a complaint about his “stockbroker” who we quickly discovered hasn’t been licensed since the 1990’s. Checking out purported stockbrokers is easy and free at FINRA’s BrokerCheck site. In addition to information about the securities licenses the individual has, it will show you his or her employment history, if he or she has ever filed for bankruptcy, and any customer complaints or charges by securities regulators.
  1. Don’t believe promises of little or no risk with high returns. The higher the returns, the riskier the investment. Period. 
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When you open a brokerage account, you most always agree to bring any future disputes that arise with your stockbroker or brokerage firm to FINRA for adjudication. This means you give up your right to a jury trial.

FINRA offers both arbitration and mediation services. In a nutshell, mediation is where a neutral third-party attempts to help the parties reach an amicable settlement. Essentially, the mediator points out what he or she sees are the strengths and weaknesses of each party’s position. In arbitration, one or three arbitrators (depending on the amount in dispute) hear testimony, review evidence, and render a binding decision. It is possible to utilize both methods in the same case.

Here are some of the main ways that arbitration and mediation differ.

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Stock_broker_01In the wake of the recent presidential election, speculation abounds that President-elect Trump will kill the Department of Labor’s so-called fiduciary rule, set to take effect in April 2017.  Wall Street hates the new rule, as it imposes significant obligations upon them when dealing with IRAs and other retirement accounts.

Prior to the new rule, broker-dealers liked to argue, in securities arbitrations and other lawsuits, that they had no obligation to clients other than the duty to make “suitable” investment recommendations to IRA investors.  Brokers frequently argued they owed no “fiduciary” duty to their clients and had no obligation to act in the client’s best interest.   This meant they could recommend whatever product they liked, usually the one that paid them highest commission, so long as it was otherwise suitable.

In 2015, President Obama’s Department of Labor issued a new rule, now set to take effect in April 2017, which clarifies that brokers who render investment advice to investors in retirement accounts such as IRAs are full-fledged “fiduciaries” with the obligation to act in the best interests of the investor.

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stock marketIf you have lost money in a securities investment, obviously you would be happy to recoup some of those funds.  Many companies that offer assistance with recovering lost capital, however, are likely fraudulent.  A company may sound credible, have authentic looking documents, and a fancy website, but if the deal sounds too good to be true, it probably is a scam.

Tips for Investors

  • Be a Skeptic. Assume that any “recovery” company that reaches out to you is a fake until you can independently verify it is a legitimate company – especially if it claims to be registered with FINRA. Look it up on FINRA’s BrokerCheck site and use the contact information on the BrokerCheck report to reach out to the firm.
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Yes, technically, but in reality, no.  Under the law, a FINRA securities arbitration award can be appealed, but practically speaking, arbitration awards are rarely changed when appealed.   Indeed, under the Federal Arbitration Act and the Florida Arbitration Act, a party has the legal right to file an action in court to vacate or modify an arbitration award.  Arbitration awards, however, are very difficult to overturn or modify.

Indeed, federal and state courts give substantial deference to an arbitration panel’s award, notwithstanding that arbitration panels are not necessarily bound to follow the law and can even misapply it with impunity.  Instead, an arbitration panel may enter an arbitration award that it believes results in a fair or equitable outcome.

FINRA Securities Arbitration Award

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An investor who is abused by his or her securities broker cannot sue in court.  Instead, the investor must sue the broker or the brokerage firm in arbitration before the Financial Industry Regulatory Authority, otherwise known as “FINRA.”

FINRA maintains its own arbitration forum that shares certain features of court litigation, but is also different in many material ways.  Here are seven key differences between FINRA arbitration and litigation in court:

  • First, FINRA staff processes the claim filed by the customer against the broker or firm and administers the entire case, not the clerk of court.
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How to handle the finances after the death of a loved one.

In September 2016, the Florida Office of Financial Regulation issued a Consumer Alert titled “Managing Finances After the Death of a Loved One.”   The alert makes a number of helpful recommendations to take following the death of a family member or loved one including:

  • Gathering important documents such as wills, Social Security cards, insurance plans and brokerage account statements.