John lost 15% of his retirement savings in a non-traded REIT and was unable to pay his mortgage when the REIT subsequently suspended distributions and redemptions. Sharon and Bill lost their $25,000 savings when their promissory note investment turned out to be a Ponzi scheme. Mary invested her retirement savings in bonds and watched her account decline over time.
Each of these senior investors suffered life-changing losses after they had done exactly what they had been told to do: diligently save and obtain professional advice. They also share another unfortunate commonality: though the losses they suffered changed their lives for the worse, none of them lost enough money for a private attorney to represent them.
Despite their bad fortune, these investors were lucky in one respect: they all lived in New York, the only state in the country where there are six law school investor advocacy clinics that provide free legal advice and representation. In each of these cases, a clinic investigated the investors’ complaints. If the clinic found wrongdoing, it explained the options and helped the investors obtain redress. If the clinic did not find wrongdoing, it explained what happened and why there was not a legal claim. If the investors lived in California, Texas, Georgia, or any of 41 other states, they would not have been so lucky: there are 44 states in the country where investors have no access to free legal advice through such a clinic.
Seniors have less ability to replace investment losses because they are retired and have shorter investment time horizons. Senior investors with claims below $100,000 are on their own if they want to seek recovery of their losses because private attorneys are unlikely to assist them. Their investments would be considered small, and it simply isn’t cost effective to pay an attorney to pursue these types of claims even though the losses are significant for the investors. Compounding these concerns is the fact that disputes with brokerage firms are subject to mandatory arbitration at FINRA. This is a complex, opaque process with an extensive rulebook. Brokerage firms are well represented and can easily overwhelm a senior investor trying to pursue their rights on their own in this forum.
Investor advocacy clinics’ clients are typically retired seniors, living on social security and their investments. The clinics ensure this most vulnerable population has access to justice by conducting investigations, even in cases where there may not be a claim. Although law students lead the representation, they are supervised by law professors who are also lawyers, and the students are subject to the same ethical standards that bind attorneys. This means that clinics fulfill an important role in filtering out complaints that do not have a legal basis while explaining to the investor what happened.
In John’s case, student attorneys determined the non-traded REIT was an unsuitable investment. After the clinic contacted the financial advisor’s firm and gave them an opportunity to investigate the clinic’s findings, John and the firm agreed to a resolution. In Sharon and Bill’s case, the clinic listened to the couple and reassured them that falling victim to the financial advisor’s scheme was not their fault. Here too, the clinic negotiated with the firm for a return of the couple’s losses. The clinic also listened to Mary’s concerns and conducted a full investigation. This time, the result was different: the clinic found that the reason for the account’s decline was the withdrawals Mary took and the financial advisor had not engaged in wrongdoing. The clinic explained to Mary why her account had declined over time, and Mary thanked them for listening and explaining what had happened.
There were once over two dozen investor advocacy clinics across the country. Today there are only twelve. Though many clinics started with seed grants from the FINRA Foundation, the lack of continued funding has caused many clinics to close, leaving investors without access to counsel. In 2018, the SEC’s Investor Advisory Committee
