Whether you are the victim of a "respected" Wall Street brokerage firm or a "boiler room operation," you and your attorney must prove that you have suffered an economic loss as the result of recognized misconduct by your stockbroker, investment advisor or financial planner. You must also prove that you behaved "reasonably" under the circumstances.

Most investor claims result from the following types of misconduct.

• Misrepresentation: This can involve either blatant lies or convenient "omissions." For example, a broker might claim that he knows the future price of a stock, that his firm controls the stock's price, or that he has inside information. A misleading omission would occur when a broker tells you that a company owns billions of barrels of proven oil reserves — without mentioning that the reserves cannot be recovered economically.

• Excessive Trading or "Churning": This occurs when a broker who has discretionary authority or practical ("de facto") control over an account engages in excessive trading to generate larger commissions.

• Unauthorized Trades: Here, the broker may fail to consult the client before making trades in a non-discretionary account, buy stock on margin without authority, or ignore specific instructions by the client regarding a discretionary account.

• Failure to Follow Investor Instructions: This behavior often occurs among "boiler room brokers," and can result in large losses if the stock price collapses. In these cases, the broker usually tries to convince the investor to retain a stock that he/she wants to sell, or simply ignores instructions to sell.

• Misappropriation: Misuse of an investor's funds is often accompanied by the broker's failure to report the transaction to his employer. Regardless of the firm's knowledge (or lack thereof) regarding its employee's activities, the company is liable for the misappropriation of the investor's money.

• Unsuitable Investments: This occurs when a broker or financial planner recommends inappropriate investments — in light of the client's economic circumstances or financial objectives. Example: a financial planner who recommends that his client (a retiree in need of regular investment income) put his/her money into high-risk stocks or mutual funds. Some clients have lost their life's savings due to broker misconduct. Others have had their pension fund or 401(k) placed into investments where the maturity time is too long. For example some clients are placed into equity indexed annuities that mature beyond their expected life expectancy.

In the absence of proven misconduct, arbitrators are unlikely to reward investors who are eager to keep profits when an investment strategy is profitable, but who demand reimbursement when losses mount. Broker abuse does not automatically absolve the investor from having to act responsibly to stem losses. Nearly half of all claimants do not recover any losses from arbitration. Of the plaintiffs who do recover, most receive only partial compensation. In addition, you may not be able to recover your full loss if arbitrators determine that delays in bringing the claim resulted in additional losses. For these reasons, it's best to have a knowledgeable attorney on your side.

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