Calculating Damages in Securities Arbitrations: How Much Money Are Wronged Investors Owed?

Introduction: When Might Investors Be Entitled to Damages in Securities Arbitrations?

Most claimants put forth a securities claim when they believe they have suffered financial harm due to a broker’s fraud or negligence. They go through the process, their attorneys by their side, because they are driven not only to see justice served and to potentially protect future investors from being harmed, but also to recover money they have lost in the form of damages. If a claimant wins, damages are carefully calculated to compensate them.

Two Remedies: Net Out-of-Pocket Damages and Well-Managed Damages

At the end of an arbitration proceeding, if the arbitrators believe that the claimant’s attorneys have proven, by a preponderance of the evidence, that the respondent is liable for financial losses, then the next step is for the arbitrators to, according to the Financial Industry Regulatory Authority (FINRA), “determine an appropriate remedy.” The most common remedy is damages awarded in the form of money. How are these damages calculated? The two major ways of calculating damages are “net out-of-pocket damages” and “well-managed damages.” Let’s discuss both methods of calculating damages in securities arbitrations.

How to Calculate Net Out-of-Pocket Damages in Securities Arbitrations

According to the Arbitrator’s Guide[ii] issued by the FINRA Office of Dispute Resolution, one form of damages, net out-of-pocket damages, can be calculated two ways, depending on whether “the wrongful conduct involves one or more specific trades” or “if the wrongful conduct involves the management of an entire account.”

How to Calculate Well-Managed Damages

A second method of calculating damages in a securities arbitration involves comparing the claimant’s portfolio (which has incurred losses due to fraud or negligence, as described above) with a typical, suitable portfolio that acts as a model for how the claimant’s portfolio would have likely performed had there been no wrongdoing.

Next Steps

Recovering lost funds in the form of damages is no easy task. For that reason, it is imperative to retain a securities attorney. Call (877) 238–4175, email, or visit for your free case consultation with the knowledgeable and experienced securities attorneys of Fitapelli Kurta.

Jonathan Kurta is a founding partner at Kurta Law, a national law firm representing investors who lost money due to broker misconduct.