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 Securities Arbitration Process in 6 Steps

Securities arbitration is a legal process used to resolve disputes between investors and their brokers or brokerage firms. It is an alternative to traditional litigation, allowing both parties to settle conflicts more quickly and efficiently.

Securities arbitration is often used when investors feel wronged by their financial advisors or firms. This usually happens because of misconduct, like unsuitable investments, unauthorized trading, churning, or misrepresentation. The Financial Industry Regulatory Authority (FINRA) typically governs this process, overseeing broker-dealers in the United States.

Knowing how securities arbitration works can help investors. It covers different types of disputes. Understanding what to expect from the process is important. This knowledge can guide investors if they face losses from misconduct.

Understanding Securities Arbitration

Securities arbitration is a method of dispute resolution that involves an arbitration panel, typically comprised of one to three arbitrators, who hear both sides of a case and render a binding decision. It’s similar to a court proceeding but usually less formal and faster. This method is widely used in the financial industry because most brokerage firms include mandatory arbitration clauses in their customer agreements. This means that when investors open brokerage accounts, they often agree to resolve disputes through arbitration rather than going to court.

Key Characteristics of Securities Arbitration:

Binding Decision: Once an arbitration panel renders its decision, known as an award, it is binding on both parties. There are very limited grounds for appeal, making it crucial for both sides to present their case thoroughly.
Private Process: Unlike court cases, which are part of the public record, securities arbitration is a private process. This means the details of the case and the arbitration hearings are not available to the general public.
Streamlined Process: Arbitration is generally quicker and less formal than court litigation. The process can take anywhere from several months to a few years, depending on the complexity of the case. However, this is often much faster than the time it takes to resolve a case in court.
FINRA Oversight: Most securities arbitrations in the U.S. are managed by FINRA. They provide the rules and procedures for resolving disputes between investors and brokers.

Types of Disputes Handled by Securities Arbitration

Securities arbitration is used to resolve a variety of disputes between investors and their brokers or brokerage firms. These disputes often involve allegations of broker misconduct or breaches of fiduciary duty. Common types of disputes that may lead to securities arbitration include:

Unsuitable Investments: Brokers are required to recommend investments that align with their clients’ financial goals, risk tolerance, and investment experience. If a broker recommends investments that are too risky or inappropriate for a client’s profile, it may be grounds for arbitration.
Churning: Churning occurs when a broker engages in excessive trading in a client’s account to generate commissions, often disregarding the client’s investment objectives. This unethical practice can deplete the value of a client’s portfolio and is a frequent cause of securities arbitration claims.
Unauthorized Trading: Brokers must have the client’s authorization before making trades on their behalf, unless the client has given the broker discretionary authority. Unauthorized trading is a violation of industry rules and can lead to significant financial losses for the investor.
Misrepresentation and Fraud: If a broker provides misleading information or omits crucial facts about an investment, leading the client to make decisions they otherwise wouldn’t have, it can constitute fraud or misrepresentation. Investors can file for arbitration to recover losses resulting from such misconduct.
Breach of Fiduciary Duty: Brokers have a fiduciary duty to act in the best interest of their clients. If they fail to fulfill this duty, such as by prioritizing their own financial gain over the client’s interests, they may be held accountable through arbitration.

How the Securities Arbitration Process Works

If an investor believes they have been wronged by their broker or brokerage firm, they can initiate the arbitration process through FINRA. Here’s an overview of how the securities arbitration process works:

Filing a Claim: The process begins when the investor (known as the claimant) files a statement of claim with FINRA. This document outlines the facts of the case, the allegations against the broker or firm, and the compensation the investor is seeking.
Selecting Arbitrators: Once the claim is filed, a panel of arbitrators is selected. Depending on the size and complexity of the claim, the panel may consist of one or three arbitrators. The parties can choose arbitrators from a list given by FINRA. This helps ensure a fair and unbiased decision-making process.
Discovery Process: Both parties exchange documents and information relevant to the case during the discovery phase. This is where both sides gather evidence to support their claims and defenses.
Arbitration Hearing: After discovery, the arbitration hearing takes place. Similar to a courtroom trial, both parties present their evidence and arguments before the arbitrators. Witnesses can be called, and cross-examinations take place.
Arbitrators’ Decision: After hearing both sides, the arbitration panel issues a written decision called an award. The panel can order the broker or firm to pay compensation if they find in favor of the investor. The decision is binding, and both parties must comply with the award.
Post-Arbitration: Once the award is issued, it is typically final and enforceable. The losing party has limited grounds for appealing the decision, so the process generally concludes with the issuance of the award.

Pros and Cons of Securities Arbitration

Benefits:

Faster Resolution: Arbitration typically resolves disputes more quickly than traditional litigation, which can take years to conclude.
Lower Costs: Arbitration can be costly, but it is usually cheaper than a full-court trial. Legal fees, court costs, and other expenses are typically lower in arbitration.
Private Process: Arbitration keeps sensitive financial details confidential. This is different from court cases, which are public records.

Cons:

Limited Appeal Options: Once an arbitration award is issued, it is binding, and there are limited grounds for appeal. This means that investors have little recourse if they are unhappy with the outcome.
Arbitrator Bias: Arbitrators need to be fair. However, some investors are concerned that arbitrators linked to the financial industry might not be neutral. At FINRA, investors can choose to proceed without industry-linked arbitrators.

If you believe your broker has treated you unfairly, you may want to consider securities arbitration. This process could help you recover any money you lost because of their actions. Contact Bakhtiari & Harrison today. We can discuss your situation and explain how we can help you with arbitration. We will also protect your financial interests.