Recoverable Damages

The most basic remedy is damages for out-of-pocket losses. The out-of-pocket lost is generally the amount of money invested minus the returns and the residual value of the investment. The out-of-pocket measure is also generally the smallest measure of damages, so it is important not to limit yourself to it.

In addition to out-of-pocket losses, an investor is often awarded damages based on the profits he would have made had the wrongful act not occurred. These lost profits are proved through the use of a computer program that performs an alternative investment analysis or interest calculation. In the event that there are difficulties establishing the residual value of the investment, the arbitrators or court can award rescission and require the investor to return or assign the improper investment to the broker in exchange for a return of the full purchase price and any ancillary damages.

Arbitrators and courts have the power to award punitive damages and will do so where the facts warrant them and they are satisfied that there is an adequate basis in law to do so. Since punitive damages are not available for a claim under Rule 10b-5, the availability of punitive damages is often determined by state law, which in California is generally Section 3294 of the Civil Code.

Arbitrators and courts may also award attorneys' fees in an appropriate case. The most common basis for an award of fees is an attorneys' fee provision in the investor's account agreement. In addition, certain states, such as Florida, have statutory provisions that allow attorneys fees to be awarded in certain securities cases. In addition, the federal Court of Appeals for the Ninth Circuit has specifically upheld an award by arbitrators of attorneys' fees where there was no fee agreement based on federal common law that allows the award of such fees for improper defense tactics.

Finally, in a proper case arbitrators or a court may impose constructive trusts, direct that specific property be turned over, or enjoin future misbehavior.
Of course, the fact that a particular kind of damages may be available does not necessarily mean that you will be able to convince the arbitrators, court, or jury to give it to you, but you should be sure to ask for all appropriate damages, without asking for damages that are clearly unavailable. An experienced investment lawyer will know what damages are worth pursuing in a specific case.

If you are able to get an award or judgment, you still have to collect it. Whether you can do so depends primarily on whether at least one of the parties against whom your judgment or award runs can be found and that has an viable business or other assets that can be found. There's an old saying in law that there's no point in suing a turnip because, as we all know, "you can't get blood out of a turnip." This is why, before you bring your claim, you should consider whether any of the defendants will be able to pay any award or judgment.

Collecting is made easier by the fact that, in many cases, several parties may be responsible for a broker's misconduct besides the broker himself. For example, more than one broker may have participated in the wrongdoing. The broker's supervisor may also be responsible on a controlling person or negligent supervision theory. The broker's firm is almost always responsible on a respondeat superior theory, as well as under controlling person principles. Certain officers, directors, and shareholders may also be responsible under common law principles, federal controlling person liability, or state statutory rules of vicarious liability applying to securities fraud. Even where a firm is insolvent, it sometimes has insurance that will pay a judgment or award.

In addition, if you get an award in an arbitration before the National Association of Securities Dealers, the collection of your award is usually very simple. The rules of the NASD require that arbitration awards be paid promptly, on pain of disciplinary proceedings against the broker. Therefore, if you have an NASD arbitration award against an individual broker or a firm that wants to continue to be in the securities business, they almost invariably pay. In addition, if you do business with an established and reputable securities firm, you will probably have no trouble collecting an award or judgment. In other situations, it is important to make sure that you include everyone with liability in your claim in order to improve your chances.