What is FINRA arbitration?

FINRA arbitration is a method of resolving disputes between investors and brokerage firms or financial advisors outside the court system. It involves a neutral third party, an arbitrator, who reviews the case and makes a binding decision.

Why choose arbitration over litigation?

Arbitration is typically faster, less formal, and more cost-effective than litigation. It also provides a final resolution to disputes, with limited grounds for appeal. Most relationships with financial advisors are formalized by entering into a contract which contains a dispute resolution clause. Nationally, most dispute resolution clauses provide for FINRA arbitration.

Who can file a FINRA arbitration claim?

Investors, brokerage firms, and financial advisors can file a FINRA arbitration claim if they have a dispute related to securities or investment activities. FINRA arbitration is normally the forum for disputes among registered persons, brokerage firms and the public customer clients of the firms.

How do I start the FINRA arbitration process?

To start the arbitration process, Bakhtiari & Harrison will file a Statement of Claim with FINRA, detailing the nature of the dispute, the parties involved, and the relief sought.

What is a Statement of Claim?

A Statement of Claim is a written document submitted by the claimant outlining the facts of the dispute, legal claims, and the desired outcome.

What happens after filing the Statement of Claim?

After filing, the respondent has 45 days to answer the Statement of Claim. The answer must address the claims and may include counterclaims or other relief sought.

What fees are involved in FINRA arbitration?

Fees include filing fees, hearing session fees, and possibly member surcharges or process fees, depending on the specifics of the case.

Can I represent myself in FINRA arbitration?

Yes, you can represent yourself, but many choose to hire an attorney with experience in securities arbitration due to the complexity of the process. Investors and industry professionals who choose to represent themselves do so at a substantial disadvantage, Wall Street firms typically retain experienced professional counsel to represent their interests.

How are arbitrators selected?

Arbitrators are selected through the Neutral List Selection System (NLSS), which provides a list of potential arbitrators. Both parties rank and strike names to agree on a panel.

What qualifications do FINRA arbitrators have?

FINRA arbitrators include attorneys, accountants, financial professionals, and public members who have undergone training and meet FINRA’s qualification standards.

How long does the arbitration process take?

The process typically takes 12-18 months from filing to the final award, but this can vary based on case complexity and scheduling. Preference may be given to investors that are seriously ill or elderly.

What is a prehearing conference?

A prehearing conference is a meeting between the parties and the arbitrators to discuss procedural issues, set a schedule, and address preliminary matters including final FINRA arbitration hearing dates.

What is discovery in arbitration?

Discovery is the exchange of documents and information between the parties to prepare for the hearing. It is more limited than in litigation.

What happens during the arbitration hearing?

During the hearing, both sides present evidence, call witnesses, and make arguments. The arbitrators then deliberate and render a decision.

Is the arbitration hearing open to the public?

No, arbitration hearings are private and confidential. Only the parties, their representatives, and the arbitrators may attend.

Can I settle my case before the hearing?

Yes, parties can settle at any time before the arbitrators render a decision, often through negotiation or mediation.

What is mediation in the context of FINRA arbitration?

Mediation is a voluntary process where a neutral mediator helps the parties negotiate a settlement. It is separate from arbitration and non-binding.

What happens if I lose in arbitration?

If you lose, the arbitrator’s decision is final and binding. There are limited grounds for challenging the award in court.

Can I appeal an arbitration decision?

Generally, you cannot appeal an arbitration decision. However, you can seek to vacate the award on very narrow grounds, such as arbitrator misconduct.

What types of disputes are resolved through FINRA arbitration?

Disputes include claims of fraud, breach of fiduciary duty, negligence, breach of contract, and other issues related to securities and investments.

How are damages determined in arbitration?

Damages are determined based on the evidence presented, including financial records, expert testimony, and the specifics of the case.

Can arbitrators award attorney’s fees?

Arbitrators can award attorney’s fees if provided for by law, contract, or if both parties request it.

How do I enforce an arbitration award?

An arbitration award can be enforced in court through a confirmation process, making it a judgment that can be collected.

What is expungement in FINRA arbitration?

Expungement is the process of removing information from a broker’s record on the Central Registration Depository (CRD) system. It is only granted under specific conditions.

What are the grounds for vacating an arbitration award?

Grounds for vacating an award include arbitrator bias, fraud, corruption, or misconduct, as well as exceeding their powers.

Are arbitration awards public?

Yes, arbitration awards are published on FINRA’s website, providing transparency and access to past decisions.

What is the role of the Office of Dispute Resolution?

The Office of Dispute Resolution administers arbitration and mediation cases, ensuring that the process runs smoothly and efficiently.

What is a Simplified Arbitration?

Simplified Arbitration is for cases involving claims of $50,000 or less, allowing for a quicker and less expensive resolution without a hearing.

Can I request an expedited hearing?

Yes, in certain circumstances, such as elderly or seriously ill parties, you can request an expedited hearing.

What is the role of an arbitrator?

An arbitrator acts as a neutral decision-maker, reviewing evidence, hearing testimony, and issuing a binding decision on the dispute.

How do I prepare for an arbitration hearing?

Preparation involves gathering evidence, preparing witnesses, and developing a clear case strategy to present to the arbitrators.

What types of evidence are admissible in arbitration?

Evidence can include documents, emails, financial records, expert reports, and witness testimony, subject to the arbitrators’ discretion.

Can I request documents from the other party?

Yes, through the discovery process, you can request relevant documents and information from the other party to support your case.

How does FINRA handle conflicts of interest with arbitrators?

FINRA requires arbitrators to disclose any potential conflicts of interest, and parties can object to arbitrators they believe are biased.

What happens if a party does not comply with discovery?

If a party does not comply, the other party can file a motion to compel, asking the arbitrators to order compliance and possibly impose sanctions.

What is a motion in arbitration?

A motion is a formal request for the arbitrators to make a ruling on a specific issue, such as compelling discovery or dismissing a claim.

Can I request interim relief in arbitration?

Yes, you can request interim relief, such as temporary restraining orders or injunctions, to preserve the status quo pending the final decision.

How are hearing locations determined?

Hearing locations are typically determined by the location of the claimant unless both parties agree to a different venue.

What is a telephonic or virtual hearing?

Telephonic or virtual hearings are conducted via phone or video conference, allowing parties to participate remotely.

How are arbitration awards paid?

Awards are typically paid by the losing party within 30 days of the decision, unless otherwise specified by the arbitrators.

What if the losing party does not pay the award?

If the losing party does not pay, you can seek enforcement through the courts, turning the award into a legally enforceable judgment.

Are there any limits on the types of claims I can bring in arbitration?

FINRA arbitration covers a broad range of claims related to securities, but there are some statutory and regulatory limits on certain types of claims.

Can I bring a class action in FINRA arbitration?

No, class actions are not permitted in FINRA arbitration. However, you can join other claimants in a single arbitration if the claims are similar.

What is the role of expert witnesses in arbitration?

Expert witnesses can provide specialized knowledge and opinions to help explain complex financial issues to the arbitrators.

How are hearing dates scheduled?

Hearing dates are scheduled based on availability of the parties and arbitrators, with consideration for the complexity of the case.

Can I request a different arbitrator if I believe one is biased?

Yes, you can challenge an arbitrator if you believe they have a conflict of interest or bias that affects their impartiality.

What is a “chairperson” in a FINRA arbitration panel?

The chairperson is the lead arbitrator who manages the procedural aspects of the case and ensures the hearing runs smoothly.

How does FINRA ensure fairness in arbitration?

FINRA has rules and procedures in place to ensure a fair and impartial process, including arbitrator training and disclosure requirements.

How do I learn more about the FINRA arbitration process?

For more information, you can visit FINRA’s website, contact their Office of Dispute Resolution, or consult with experienced attorneys like those at Bakhtiari & Harrison.

How can Bakhtiari & Harrison help with FINRA arbitration?

Bakhtiari & Harrison can assist with filing claims, responding, selecting arbitrators, discovery, hearings, and ensuring the best possible outcome through skilled representation and strategic advice.

FINRA Outside Business Activities Attorney

FINRA Rule 3270 is a regulatory guideline established by the Financial Industry Regulatory Authority (FINRA) that governs the outside business activities (OBAs) of registered representatives in the securities industry. The rule ensures that financial advisors, brokers, and other professionals maintain transparency regarding their professional engagements outside of their primary employment with a member firm.

FINRA RULE 3270

Key aspects of FINRA Rule 3270 include:

Disclosure Requirement: Registered representatives must provide prior written notice to their member firm before engaging in any outside business activity. This includes any employment or business relationship where they may receive compensation or have a reasonable expectation of compensation.

Definition of Outside Business Activities: While the rule states that OBAs include roles such as employee, independent contractor, sole proprietor, officer, director, or partner in another entity, it leaves certain aspects open to interpretation. Notably, passive investments and activities governed by FINRA Rule 3280 are exempt from these disclosure requirements.

Firm’s Evaluation: When a member firm receives notification of an outside business activity (OBA), it is imperative that the firm implements thorough supervisory procedures to evaluate the situation. This assessment involves a compliance review to ascertain if the proposed activity might conflict with the representative’s obligations to the firm or compromise its clients’ interests. Additionally, this evaluation takes into account how the activity may be perceived by customers and the general public, especially in terms of whether it could be construed as a part of the firm’s business operations.

Risk Management: The rule helps firms identify and manage potential conflicts of interest that outside activities may create. By requiring disclosure, the rule aims to protect investors and maintain the integrity of the securities industry, ensuring that representatives prioritize their responsibilities to their clients and the firm.

Impact on Ethics and Standards: Compliance with FINRA Rule 3270 is vital for upholding professional ethics and standards in the securities sector. It fosters trust between clients and investment firms by promoting transparency and accountability among financial advisors.

Overall, FINRA Rule 3270 is a crucial component of the regulatory framework that seeks to ensure fair and honest practices within the securities industry, emphasizing the importance of adhering to established guidelines to protect both clients and firms.

What Does FINRA Consider an Outside Business Activity?

FINRA defines Outside Business Activities (OBAs) as any employment, business relationship, or activity outside of a registered representative’s role with a member firm that could impact their obligations to the firm or its clients. Here are the key characteristics that help clarify what constitutes an OBA:

Employment and Business Relationships: Any outside employment, whether as an employee, independent contractor, or partner, qualifies as an OBA. This includes roles in other businesses that could result in financial compensation or benefits.

Volunteer Work and Honorary Positions: While unpaid volunteer work generally does not require disclosure, any honoraria or stipends may qualify as compensatory and necessitate disclosure.

Ownership Interests: Holding a significant stake in a business or being involved in management also counts as an OBA. This could involve being a sole proprietor or holding a directorship in another firm.

Real Estate and Passive Investments: While certain forms of passive investment do not require disclosure, any direct involvement that goes beyond mere passive investment—such as property management or real estate brokerage activities—does require notification.

Exclusions: Activities governed specifically by FINRA Rule 3280, which regulates private securities transactions, are treated separately and can be exempt from conflicting requirements.

Any activity outside the representative’s designated duties that could compromise their integrity, raise conflicts of interest, or be perceived as related to their role within their member firm is considered an Outside Business Activity. Registered representatives must be diligent in disclosing these engagements to ensure compliance with FINRA regulations.

How do Registered Reps Disclose Outside Business Activities?

Registered representatives are required to follow specific procedures when disclosing Outside Business Activities (OBAs) to ensure compliance with FINRA regulations and standards, including commercial honor, principles of trade, and equitable principles. Here’s a step-by-step guide on how the disclosure process usually works:

Notification to the Firm: Upon engaging in any OBA, a registered person must notify their member firm in writing. This notification should be clear and concise, detailing the nature of the activity, the duration, and whether any compensation will be received.

Completion of Disclosure Forms: Most firms have specific forms or systems for reporting OBAs. Registered representatives should familiarize themselves with these internal procedures to ensure they are providing all necessary information. This includes answering questions about the nature of the activity, potential conflicts of interest, and the impact of the OBA on their primary responsibilities.

Review by Supervisors: Once the disclosure is submitted, it typically undergoes a review process by a supervisor or compliance officer within the member firm. This review evaluates whether the activity presents any potential conflicts of interest or compliance issues with FINRA rules.

Firm’s Decision: Upon completion of the review, the firm will make a decision to either grant firm approval or deny the outside business activity. If the activity receives approval, the firm may establish specific conditions or request further disclosures based on the characteristics of the OBA.

Ongoing Obligation to Disclose: It’s crucial to understand that the obligation to disclose is not a one-time event. Registered representatives must promptly report any changes in their outside business activities, including starting new activities or ceasing existing ones.

Record Keeping: Finally, both the registered representative and the member firm are responsible for maintaining accurate records of the disclosed OBAs. This is vital for regulatory compliance and can be crucial in the event of an audit.

By following these prescribed disclosure processes, registered representatives can ensure they meet FINRA’s requirements while maintaining transparency with their member firms. Failure to disclose or misrepresent an OBA can lead to serious disciplinary actions, including fines and sanctions, making thorough compliance essential.

Selling Away: Definition and Violation Context

Definition of Selling Away:

Selling away is a term that describes the actions of a securities broker who solicits, buys, or sells securities that are not sanctioned by their affiliated brokerage firm and are absent from the firm’s official records. The Financial Industry Regulatory Authority (FINRA) explicitly forbids this practice, as outlined in FINRA Rule 3040. Transactions classified as selling away often take place outside the established oversight of the broker-dealer and may involve questionable investment opportunities, such as fraudulent schemes, private placements, or promissory notes.

This illegal activity can sometimes be intertwined with personal investments made by brokers on the side. Personal investments, when conducted outside the parameters of the broker’s trade, can lead to significant risks both for the investor and the broker, including potential disciplinary action from regulatory bodies. Being involved in unauthorized selling away can not only violate company policies but also expose brokers to legal consequences, further emphasizing the importance of adhering to FINRA regulations and ensuring all personal investments and outside business activities are accurately disclosed and approved by the brokerage firm.

Why Selling Away is a Violation of an Undisclosed Outside Business Activity (OBA):

Selling away is intrinsically linked to the concept of Outside Business Activities (OBAs) because it often arises from a broker’s engagement in unauthorized business ventures that conflict with their responsibilities to clients. When a registered representative participates in an OBA without disclosing this involvement to their brokerage firm, it can create significant risks for investors and violate regulatory requirements. Here are the primary reasons why selling away constitutes a violation of an undisclosed the outside business activities rule:

Conflict of Interest: Engaging in outside business activities may lead to conflicts of interest, where the broker’s outside business dealings take precedence over their fiduciary duties to clients. For instance, if a broker is involved in selling investments through their outside business that are more lucrative for them but not in the best interest of their clients, it undermines the trust and integrity that clients expect from their financial advisors.

Lack of Oversight: When a broker engages in selling away through undisclosed outside business activities, it occurs outside the supervisory purview of the broker-dealer. This lack of oversight means that the firm cannot monitor the broker’s activities, the nature of the products being sold, or the suitability of those investments for clients. As a result, investors may be exposed to increased risks without adequate protection or guidance.

Misleading Clients: Clients may be led to believe that the investments recommended by their broker are legitimate and sanctioned by the firm. When brokers sell securities away from their firm, clients may unknowingly invest in high-risk or fraudulent products, as they are not informed of the true nature of the transactions or the broker’s motivations.

Regulatory Violations: Selling away directly contravenes FINRA rules, which require brokers to disclose any outside business activities that may impact their professional conduct. Failure to do so exposes both the broker and the firm to regulatory scrutiny and potential disciplinary action.

Selling away is not just a violation of FINRA rules; it stems from a lack of transparency regarding Outside Business Activities. This practice can lead to conflicts of interest, divert a broker’s attention from their primary responsibilities, and ultimately jeopardize the interests of investors, making it a serious regulatory concern.

FINRA’s Investigative Process

When FINRA believes that a broker has violated Rule 3270 concerning outside business activities, which pertains to the disclosure of outside business activities (OBAs), the process typically unfolds as follows:

Inquiry Letter

The process often begins with an inquiry letter sent by FINRA to the broker in question. This letter may seek clarification or additional information regarding the broker’s outside business activities. The inquiry may arise from routine examinations, customer complaints, or tips from other industry participants. The broker is expected to respond to this inquiry, providing relevant details about their OBAs.

Investigation

Upon receiving the broker’s response, FINRA will conduct a thorough investigation. This might involve gathering documentation, interviewing witnesses, and assessing whether the broker disclosed their outside activities as required. FINRA reviews the circumstances surrounding the alleged violations, including whether these activities interfered with the broker’s primary responsibilities and whether any investor harm occurred.

Acceptance, Waiver, and Consent (AWC)

If FINRA determines that a violation has occurred, the broker may receive an AWC offer. This is a settlement option in which the broker can accept responsibility for the violation without proceeding to a formal hearing. The AWC typically includes the broker agreeing to certain sanctions, such as a fine and/or suspension from the industry. The AWC is submitted to FINRA’s National Adjudicatory Council (NAC) for approval, and once accepted, it becomes part of the broker’s public record.

Wells Notice

In cases where FINRA believes the evidence is strong enough to support formal charges, it may issue a Wells Notice. This notice informs the broker that FINRA has found sufficient grounds to recommend disciplinary action, outlining the nature of the violations. The broker is given an opportunity to respond to the Wells Notice, typically through a written submission or a meeting with FINRA staff, to argue why disciplinary action should not be pursued.

Hearing

If the broker’s response to the Wells Notice concerning outside business activities does not resolve the matter, FINRA may proceed to a formal hearing. During this hearing, both FINRA and the broker can present evidence and arguments. An independent hearing officer or panel will evaluate the case based on the presented evidence. The outcome can include disciplinary measures if the broker is found in violation of FINRA rules, including Rule 3270 concerning outside business activities.

Sanctions

Based on the findings of the hearing, sanctions may be imposed. These can range from fines to suspensions, or even expulsion from the industry, depending on the severity of the violation, the duration of non-compliance, involvement of clients, and any resulting harm.

Impact on CRD

Regardless of whether a case is settled through an Acceptance, Waiver, and Consent (AWC) or addressed in a formal hearing, the outcome has significant implications for the broker’s Central Registration Depository (CRD) record. Any disciplinary actions taken, such as fines, suspensions, or expulsions, must be reported in compliance with regulatory reporting requirements. This information is made publicly available on the broker’s BrokerCheck report, which can influence a broker’s reputation, ability to attract clients, and chances for securing future employment in the financial industry.

The process initiated by FINRA for potential violations of Rule 3270 concerning outside business activities involves a systematic inquiry into the broker’s activities, potential settlement offers through AWCs, or a more formal adjudicative process in cases of severe violations. The intent behind these steps is to uphold the integrity of the securities industry, protect investors, and ensure firms’ compliance departments with regulatory standards.

The Importance of Legal Representation in a FINRA Investigation

A broker facing an investigation for a potential violation of FINRA Rule 3270 should consider having legal representation for several important reasons:

Understanding Complex Regulations: FINRA regulations, including Rule 3270, can be complex and nuanced. A knowledgeable attorney specializing in securities law can help the broker navigate these intricacies, ensuring they fully understand the implications of the rule and how it applies to their specific situation.

Protection of Rights: Legal representation ensures that the broker’s rights are protected throughout the investigation process. An attorney can advocate on the broker’s behalf, ensuring that they are treated fairly and that any statements or evidence presented are not misinterpreted.

Risk Management: Given that Rule 3270 concerning outside business activities involves the disclosure of outside business activities, a violation can lead to significant consequences, including fines, disciplinary actions, and damage to reputation. An attorney can help assess the risks involved, develop a defense strategy, and mitigate potential repercussions.

Navigating the Investigation Process: Investigations can be daunting and stressful. An attorney experienced in FINRA matters can guide the broker through the process, helping them prepare for interviews, gather necessary documentation, and formulate responses to inquiries from regulators.

Defending Against Allegations: If the investigation leads to formal allegations concerning outside business activities, having a legal representative is crucial. An attorney can build a defense based on the specifics of the case, including challenging the evidence or mitigating circumstances that could explain the broker’s actions.

Negotiation and Settlement: If it becomes apparent that a violation concerning outside business activities may have occurred, an attorney can negotiate with FINRA on behalf of the broker. They can work to achieve a favorable outcome, such as a settlement that minimizes penalties or other disciplinary measures.

Maintaining Professional Integrity: Legal representation can help brokers maintain their professional integrity by ensuring that they handle the investigation appropriately. Advisors can avoid making statements that could inadvertently exacerbate the situation or lead to further complications.

Long-Term Implications: A violation of FINRA Rule 3270 concerning outside business activities may have long-term implications for a broker’s career. An attorney can assist in addressing any issues that may arise and help the broker understand how to comply with regulations moving forward to prevent future problems.

Legal representation is vital for a broker being investigated for possible violations of FINRA Rule 3270 concerning outside business activities, commercial honor, principles of trade, and equitable principles as it provides essential support, guidance, and protection throughout a potentially challenging process.

Why Hire Bakhtiari & Harrison?

When facing a FINRA Rule 3270 investigation concerning outside business activities, it is crucial for registered representatives to seek legal advice to navigate the complexities of regulatory compliance and potential repercussions or reportable requirements. Retaining the law firm Bakhtiari & Harrison can provide you with a distinct advantage throughout this process. Here are compelling reasons why you should consider their services:

Proven Expertise: Ryan Bakhtiari and David Harrison collectively boast over 50 years of experience in the securities industry, specifically representing stockbrokers and investment professionals. Their extensive knowledge of FINRA regulations, including Rule 3270, positions them uniquely to understand the nuances of your situation and provide tailored legal solutions.

Leadership in the Industry: Ryan Bakhtiari’s background as the chairperson of the National Arbitration and Mediation Committee (NAMC) showcases his commitment to upholding ethical standards and protecting the interests of financial professionals. His leadership role reflects an understanding of the regulatory landscape and the importance of compliance, making him well-equipped to advocate for your rights during an investigation.

Diverse Legal Background: David Harrison’s prior experience as in-house counsel for Morgan Stanley Dean Witter and as a former Assistant District Attorney in New York City adds significant value to your defense. His insights into both the legal and operational aspects of the securities industry enable him to anticipate potential challenges and develop effective strategies to mitigate risks associated with your case.

Client-Focused Representation: Bakhtiari & Harrison prioritize their clients’ needs and work diligently to protect their interests. They understand the gravity of a Rule 3270 investigation concerning outside business activities and its potential implications on your career and reputation. Their commitment to providing robust defense of an outside business activities matter and personalized counsel ensures that you receive the support necessary to navigate the investigation effectively.

Navigating Regulatory Complexity: The securities industry is fraught with regulatory complexities, and a misstep in compliance can lead to severe consequences, including fines, suspensions, or even loss of licensure. Bakhtiari & Harrison’s comprehensive understanding of FINRA regulations concerning outside business activities enables them to guide you through the process, helping to ensure compliance and reduce the likelihood of adverse outcomes.

Retaining Bakhtiari & Harrison when facing a FINRA Rule 3270 investigation into outside business activities provides you with access to highly experienced legal representation and offers the reassurance that you are working with professionals who understand the intricacies of the securities industry. Their combined expertise and dedication to client advocacy make them an invaluable ally in navigating any regulatory challenges concerning outside business activities you may encounter. Don’t risk your career—contact Bakhtiari & Harrison today to secure your needed representation.