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 Compliance in Securities: Case Insights

Navigating the complexities of securities regulations is crucial for financial professionals and firms alike. The recent sanctions against Larry Joseph Michaels highlight the significance of adhering to regulatory requirements and the potential consequences of failing to do so. At Bakhtiari & Harrison, our experienced securities attorneys are dedicated to guiding clients through these challenges, ensuring compliance, and protecting their interests.

Compliance Case Overviews Larry Joseph Michaels

On April 18, 2024, Larry Joseph Michaels (CRD #4351477, Lake Forest, California) was fined $10,000 and suspended from association with any FINRA member in all capacities for two months. The sanctions were issued without Michaels admitting or denying the findings. The case centered on two main issues: exercising discretionary authority in customer accounts without proper authorization and failing to fully disclose his involvement in an outside business activity (OBA).

Unauthorized Discretionary Trading

The findings revealed that Michaels exercised discretionary authority in customer accounts without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary by his member firm. Specifically, Michaels executed trades without communicating with the customers on the trade dates, violating the firm’s written supervisory procedures (WSPs), which explicitly prohibited the exercise of discretionary authority in brokerage accounts.

Undisclosed Outside Business Activity

Additionally, Michaels failed to notify his firm about the full extent of his participation in an OBA. Upon joining the firm, Michaels disclosed his ownership of an accounting business and his role in providing income tax preparation and accounting services. The firm approved this OBA based on the disclosed role. However, Michaels’ involvement went beyond what was initially disclosed. He provided additional services to his accounting clients, including some who were also his firm’s brokerage customers. These undisclosed roles included acting as a manager and consultant, assisting clients in managing and growing their businesses, acting as an incorporator, filing articles of incorporation, and being listed as a governor with decision-making authority for at least one company.

The suspension for Michaels is in effect from May 20, 2024, through July 19, 2024. This case underscores the importance of full disclosure and strict adherence to firm policies and regulatory requirements.

The Role of Securities Attorneys in Ensuring Compliance

Securities attorneys play a vital role in helping financial professionals and firms navigate regulatory complexities and maintain compliance. At Bakhtiari & Harrison, our securities attorneys bring extensive experience and expertise to each case, offering a range of services designed to protect clients and ensure adherence to regulations. Our services include:

Regulatory Compliance Guidance: We provide comprehensive advice on regulatory compliance, helping clients understand and adhere to complex securities regulations, including those related to discretionary trading and OBAs.
Developing and Implementing Supervisory Procedures: Our attorneys assist firms in developing and implementing effective WSPs that address all aspects of compliance, minimizing the risk of violations.
Audit and Compliance Reviews: We conduct thorough audits and compliance reviews to identify potential gaps and recommend corrective actions, helping firms maintain robust compliance frameworks.
Representation in Regulatory Proceedings: Our team represents clients in regulatory proceedings, ensuring they receive expert legal support and advocacy during investigations and hearings.

Preventing Regulatory Violations

The case of Larry Joseph Michaels serves as a reminder of the importance of proactive compliance measures. By working with experienced securities attorneys, financial professionals can better understand their obligations and avoid the pitfalls that lead to sanctions. Key strategies for preventing regulatory violations include:

Obtaining Proper Authorizations: Ensure that all discretionary trading activities are authorized in writing by customers and that accounts are accepted as discretionary by the firm.
Full Disclosure of Outside Business Activities: Fully disclose all OBAs to the firm, including the scope of involvement, to avoid conflicts of interest and ensure compliance with firm policies.
Adhering to Firm Policies: Strictly adhere to firm policies and procedures, including those outlined in WSPs, to prevent unauthorized activities and ensure regulatory compliance.
Ongoing Training and Education: Participate in ongoing training and education programs to stay updated on regulatory requirements and best practices in the securities industry.

Contact Compliance Attorneys at Bakhtiari & Harrison Today

For legal advice and support in securities law, including regulatory compliance and representation in arbitration proceedings, contact Bakhtiari & Harrison. Our team of experienced securities attorneys is here to provide the guidance and representation you need to navigate regulatory challenges and achieve successful outcomes. Contact us today to learn more about our services and how we can assist you.