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.

The Importance of Understanding Promissory Notes for Registered Representatives

Navigating the securities brokerage industry requires registered representatives (RRs) to manage a host of legal and financial documents. Among these, promissory notes are particularly significant yet often misunderstood. These notes, frequently utilized by brokerage firms, carry considerable implications for the RRs who sign them. Understanding the details of these promissory notes, including their terms, conditions, and potential consequences, is essential for any RR.

What is a Promissory Note?

A promissory note is a financial instrument that includes a written promise by one party (the borrower) to pay a defined sum of money to another party (the lender) under specified terms. In the context of brokerage firms, promissory notes are commonly used as part of compensation packages, often in the form of loans or advances against future earnings. These loans can be used for various purposes, including transitioning to a new firm or as a signing bonus to attract top talent.

Key Terms and Conditions

Repayment Obligations: The primary obligation of a promissory note is repayment. The note will detail the repayment schedule, interest rate, and any other conditions under which the loan must be repaid. It is essential for RRs to fully understand these terms to avoid unexpected financial burdens.
Due Upon Termination: A critical and often stringent condition in many promissory notes is that the loan becomes due immediately if the RR is terminated, regardless of the reason for termination. This can create a significant financial strain if an RR loses their job unexpectedly and must repay a substantial loan balance without the means to do so.
Attorney Fee Provision: Many promissory notes include an attorney fee provision. This clause stipulates that if the brokerage firm needs to take legal action to recover the loan amount, the RR will be responsible for covering the firm’s attorney fees. This can significantly increase the financial liability for the RR.

Implications of Promissory Notes

Promissory notes can have several implications for RRs, particularly in cases of job transitions or disputes with the employer. Understanding these implications is crucial for managing risk and ensuring financial stability.

Financial Liability: The most direct implication is the financial liability that comes with a promissory note. If the RR is terminated or leaves the firm, the obligation to repay the loan can be immediate and substantial. This can lead to financial hardship, especially if the RR does not have sufficient savings or alternative income sources.
Employment Decisions: The terms of a promissory note can influence employment decisions. RRs may feel compelled to stay with a firm longer than desired to avoid triggering the repayment clause. This can impact career mobility and job satisfaction.
Legal Disputes: Promissory notes can lead to legal disputes between the RR and the brokerage firm. If an RR contests the termination or the terms of the repayment, it can result in costly and time-consuming litigation. These disputes are typically governed by FINRA arbitration, a mandatory process for resolving disputes in the securities industry. The attorney fee provision further exacerbates this issue, as RRs may end up paying both their legal fees and the firm’s.

Common Problems in Promissory Note Cases

Several issues frequently arise in promissory note cases involving stockbrokers. These problems highlight the importance of careful review and understanding of these documents before signing.

Ambiguity in Terms: Promissory notes can sometimes be vague or ambiguous in their terms. This can lead to different interpretations and disputes over the obligations of the RR. It is crucial to seek clarity on all terms and, if necessary, negotiate clearer language before signing.
Unfair Termination: If an RR feels they were unfairly terminated, the immediate repayment clause can seem particularly unjust. Proving wrongful termination in court, however, can be challenging and may not always result in the desired outcome.
Enforcement of Attorney Fee Provisions: The enforcement of attorney fee provisions can significantly increase the financial burden on the RR. Even if the RR wins the case, they may still be responsible for a portion of the legal fees, depending on the terms of the promissory note.
Impact on Credit: Failure to repay a promissory note can have severe consequences for an RR’s credit rating. This can affect their ability to secure future loans or financial products, further compounding the financial difficulties arising from job loss or disputes.

Bakhtiari & Harrison: Advocates for Registered Representatives

Bakhtiari & Harrison specializes in representing registered representatives (RRs) facing challenges related to promissory notes and other legal disputes with brokerage firms. Our firm is dedicated to protecting the rights of RRs and ensuring they receive fair treatment in their professional dealings.

Our team of experienced attorneys understands the complexities of securities law and the specific issues that RRs encounter. We provide comprehensive legal support, from negotiating the terms of promissory notes to representing RRs in litigation against brokerage firms. Our goal is to help RRs navigate these legal challenges and secure favorable outcomes that protect their financial and professional interests.

We recognize that promissory note disputes can be particularly stressful and financially burdensome for RRs. That’s why we offer tailored legal strategies to address the unique circumstances of each case. Whether dealing with ambiguous contract terms, wrongful termination claims, or enforcement of attorney fee provisions, Bakhtiari & Harrison is committed to advocating for RRs and ensuring they have the legal support they need.

If you are a registered representative facing issues related to promissory notes or other employment-related disputes, contact Bakhtiari & Harrison at www.bhseclaw.com to learn how we can assist you in resolving these challenges and protecting your professional future.

Conclusion

For registered representatives, understanding the intricacies of promissory notes is not just important—it is essential. These financial instruments carry significant implications, especially in cases of termination or legal disputes. By being fully informed and seeking professional advice, RRs can better manage the risks associated with promissory notes and make informed decisions about their careers and financial health. Bakhtiari & Harrison stands ready to assist those who find themselves facing challenges in this complex landscape, providing the expertise and advocacy needed to protect their rights and interests.