Theory vs. Reality
In an ideal world, if you have a good case,you or your lawyer would write to the broker explaining the situation andrequesting that they pay a certain amount of compensation or make a fair offer.The broker would face the realities of the situation and act with integrity,offering you a reasonable sum.
If the broker genuinely believes you weremistaken, they would explain why, and back it up with financial or legalevidence.
Unfortunately, we do not live in an idealworld and nothing makes a broker's blood run cold (or perhaps hot) more than adamages claim. The amount of money involved is generally not trivial and thereis often a fear of "the floodgates opening," as you are probably notthe only client in this position.
It is also human nature that people arereluctant to admit they are in the wrong, no more so when this affects theirpocket. Last, but very definitely not least, the civil law system has someintrinsic flaws that can be exploited by the unscrupulous and/or desperate.
So What ActuallyHappens?
In many or mostcases, the broker will deny absolutely everything with arguments that will makeyour own blood either boil or freeze. The defenses will range from blaming you,the market, or both, to distorting the figures or the laws, the logic, oranything else that shifts the liability for the losses away from the broker.This first response will generally be presented as one of injured innocence.
If you push further,it will get nasty. Despite legal and ethical obligations to treat complaintsfairly, this is also a theoretical ideal that is often totally disregarded inpractice. The unstated and sole objective of the broker is to avoid (or evade)liability by any means available.
Do not, therefore,expect fairness or sympathy and understanding; the firm will regard you as anenemy and treat you accordingly. You will be told that "our position isclear," which means "we will admit nothing and offer nothing, and ifyou want one dollar back then sue us if you dare." The question is, shouldyou dare?
Why It Would IndeedBe Daring
The odds are stackedagainst you, especially if you are dealing with a large firm. You will bestressed throughout the entire case and the firm will be as cool as theproverbial cucumber, because it will turn the case over to its compliancedivision or lawyers, who are familiar with all the tricks of the trade, haveavailable resources of all kinds, and who know that the opposite applies toyou.
Such cases are oftencomplex, invariably very time-consuming, and truly draining on all of one'sresources; financial, mental, and physical.
The other side canand will run up massive legal fees, and if you back out partway you will owethem a frightening amount of money. The fees accruing on the other side are thereal problem; they are used as a strategic weapon. The theory is that judgesare infallible and if you lose, you were in the wrong, deserve no damages, andshould, therefore, pay the costs of the other side.
Brokers are not typically held to fiduciary duty in the way that financial advisers are. Registered investment advisers are held to fiduciary duty while brokers are typically held to the suitability standard.
It is also common forthe other side to try and avoid the real issues and merits of the case fromever being discussed openly and fairly. Thus, the civil process itself getsmisused bureaucratically, through various administrative tricks and processes,while the actual financial mismanagement is either not dealt with at all orsimply denied validity.
Furthermore, the lessof a case the firm has, the more they will resort to such tactics. The otherside will probably believe it has a better chance of escaping liability bymismanaging your complaint and manipulating (or taking its chances with) thecivil system than dealing with you fairly out of court, especially if you arein the right.
In addition, you canstill lose in court because the judge gets it wrong or the broker hires legaland financial "experts" who manage to convince them (oftenincorrectly) that the merits of the case are weak. There are a lot of financialpeople out there who will testify to anything for a not-so-modest fee. Justiceis definitely not always done, hence the saying "on the high seas and incourt, you are in God's hands."
The ugly reality isthat investors generally lose money because the investment was too risky, buttrying to get damages out of the broker or firm is also fraught with financialand other risks. This all sounds daunting and rightly so. The emphasis must bemade that you can still win, but you need to be aware of the harsh realities.Litigation, just like investments, can be mis-sold.
On the Other Hand…
If you are notdealing with a big firm, there is a far more level playing field and you have amuch better chance. Likewise, if you have legal insurance that will cover mostof the cost, you can proceed more easily.
