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.

What is a REIT or Real Estate Investment Trust? 3 Risk Factors To Know

A Real Estate Investment Trust, commonly known as a REIT, is a company that owns, operates, or finances income-producing real estate across a range of property sectors. Real Estate Investment Trusts offer investors a way to invest in real estate without the complexities of directly owning property, and they have become an increasingly popular investment vehicle due to their potential for generating steady income and capital appreciation.

Understanding REITs

Real Estate Investment Trusts were established in the United States in 1960 to allow individual investors to earn a share of the income generated from commercial real estate without having to buy, manage, or finance any properties themselves. By pooling the capital of many investors, REITs enable small investors to invest in a diversified portfolio of large-scale real estate assets, which might include office buildings, shopping malls, apartments, hotels, and more.

There are two primary types:

Equity: These are the most common type and focus on owning and operating income-generating properties. The income is primarily derived from rent collected from tenants. Equity Real Estate Investment Trusts offer investors an opportunity to invest in a variety of property types, including residential, commercial, and industrial real estate.
Mortgage (mREITs): These Real Estate Investment Trusts do not own property but instead invest in mortgages or mortgage-backed securities. Their income is primarily generated from the interest on the loans they hold. Mortgage Real Estate Investment Trusts can be riskier than equity REITs because they are more sensitive to interest rate fluctuations.

How REITs Work

Real Estate Investment Trusts function similarly to mutual funds. Investors purchase shares, which in turn owns and manages a portfolio of real estate assets. By law, Real Estate Investment Trusts must distribute at least 90% of their taxable income to shareholders in the form of dividends. This makes them a reliable source of income for investors seeking regular dividend payouts.

Key Features of REITs:

High Dividend Yields: Because of the requirement to distribute 90% of taxable income, REITs tend to offer higher dividend yields compared to other stocks. This can make them particularly attractive to income-focused investors, such as retirees.
Liquidity: Publicly traded REITs are listed on major stock exchanges, making them easy to buy and sell. This provides investors with a high level of liquidity compared to direct real estate investments, which can be time-consuming and costly to liquidate.
Diversification: REITs offer diversification in two ways. First, by investing in a REIT, investors gain exposure to a diversified portfolio of real estate assets across different sectors and locations. Second, they offer diversification within an investment portfolio, as real estate often behaves differently from stocks and bonds, potentially reducing overall portfolio risk.
Professional Management: REITs are managed by professional real estate experts who handle all aspects of property management, from leasing to maintenance. This allows investors to benefit from professional management without the hassle of being a landlord.

Benefits and Risks of Investing

Benefits:

Regular Income: The primary appeal is their ability to generate consistent income through dividends. For investors looking for a reliable income stream, especially in a low-interest-rate environment, they can be a compelling choice.
Capital Appreciation: In addition to dividends, they can also offer capital appreciation as the value of the underlying properties increases over time. This potential for growth, combined with regular income, makes an attractive investment for those seeking both stability and growth.
Tax Advantages: Because they are required to distribute the majority of their income to shareholders, they are not taxed at the corporate level. This pass-through structure can make them a tax-efficient investment for many investors.

Risks:

Market Risk: Like any investment in the stock market, they are subject to market volatility. Their share prices can fluctuate based on factors such as changes in interest rates, economic conditions, and real estate market trends.
Interest Rate Sensitivity: Mortgage Real Estate Investment Trusts are sensitive to interest rate changes. Rising interest rates can lead to higher borrowing costs for Real Estate Investment Trusts and may also make their dividend yields less attractive compared to other income-producing investments, leading to a decline in share prices.
Property-Specific Risk: Performance is directly tied to the performance of the properties it owns. If a REIT is heavily invested in a particular type of property or geographic location that experiences a downturn, it could negatively impact the Real Estate Investment Trusts overall performance.

Investor Losses and Recovery: The Real Estate Fund Crisis

Types of REITs

In addition to equity and mortgage REITs, there are several other categories, including:

Publicly Traded: These are listed on major stock exchanges and can be easily bought and sold by investors. They offer the highest level of liquidity.
Public Non-Traded: While these are registered with the SEC, they are not listed on any exchanges. They can be less liquid and more complex but offer the potential for high income and capital appreciation.
Private: These are not traded on public exchanges and are typically only available to accredited investors. They can offer high potential returns but come with greater risk and less liquidity.

The Dangers of Investing in Private Real Estate REITs: Protecting Your Investments

If you’re interested in exploring REITs as part of your investment strategy or if you have experienced issues related to your investments, Bakhtiari & Harrison is here to help. Our team specializes in protecting investors and recovering losses through FINRA arbitration due to unsuitable investments or misconduct. Contact us today to learn more about how we can support your financial well-being and safeguard your investments.