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.

10 Myths Uncovered in Securities Law 2024

Securities law can often seem complex and shrouded in mystery, leading to many misconceptions and myths. Understanding the truth behind these myths is crucial for lawyers, investors, traders, and business owners. This guide aims to debunk ten common myths about securities law, providing clarity and insight into this essential field.

Overview of Securities Law

Securities law governs the creation, sale, and trading of securities such as stocks and bonds. Its primary goals are to protect investors, ensure fair and efficient markets, and facilitate capital formation. The Securities and Exchange Commission (SEC) is the primary regulatory body enforcing these laws.

Importance of Understanding Securities Law

Understanding securities law is vital for:

Protecting Investors: Ensures that investors have access to accurate and complete information.
Market Integrity: Maintains fair trading practices and prevents fraud.
Regulatory Compliance: Helps businesses comply with legal requirements and avoid penalties.

Common Misconceptions about Securities Law

There are many misconceptions about securities law that can lead to misunderstandings and legal issues. Let’s explore and debunk these myths.

Myths about Securities Law

Myth #1: Securities law only applies to large corporations

Reality: Securities law applies to all companies, regardless of size. Even small businesses must comply with securities regulations when raising capital.

Myth #2: Compliance with securities law is optional

Reality: Compliance with securities law is mandatory. Non-compliance can result in severe penalties, including fines and imprisonment due to enforcement actions taken by the SEC.

Myth #3: Securities law is only relevant to financial professionals

Reality: Securities law affects everyone involved in buying, selling, or issuing securities, including investors, traders, and business owners.

Myth #4: Securities law is only important for publicly traded companies

Reality: Both public and private companies must adhere to securities laws, especially when raising capital through private placements or public offerings.

Myth #5: Securities law is too complicated for the average person to understand

Reality: While securities law can be complex, understanding its basic principles is achievable for anyone with the right resources and effort.

Debunking the Myths

Explanation of Securities Law and Its Purpose

Securities law is designed to protect investors and ensure fair, efficient markets. It requires companies to provide accurate information and adhere to ethical standards.

How Securities Law Applies to All Types of Companies

Regardless of size, all companies must follow securities regulations when issuing securities. This includes registration, disclosure, and anti-fraud provisions.

The Consequences of Non-Compliance with Securities Law

Non-compliance can lead to severe consequences such as fines, legal action, and damage to reputation. It is essential for businesses to understand and follow securities laws.

The Role of Regular People in Securities Law

Everyday individuals, such as investors and employees, play a role in upholding securities laws by staying informed and reporting suspicious activities.

Examples of How Securities Law Affects Everyday Individuals

From protecting retirement savings to ensuring fair market practices, securities law impacts everyone’s financial well-being. Misleading information and market manipulation are prohibited to maintain market integrity.

Controversies in Securities Law

Insider Trading and Its Impact on the Stock Market

Insider trading involves using non-public information for trading securities, which undermines market integrity and is illegal.

The Debate Over Short-Selling and Its Effects on Companies

Short-selling, while a legitimate strategy, can be controversial. Critics argue it can harm companies, while proponents claim it adds liquidity to the market.

The Role of the Securities and Exchange Commission (SEC) in Regulating Securities Law

The SEC enforces securities laws, conducts investigations, and implements regulations to protect investors and maintain fair markets.

Criticism of Securities Law and Proposed Reforms

Some argue that securities laws are too stringent and stifle innovation, while others believe they need to be stricter to prevent securities fraud and other illegal activities.

Recent High-Profile Cases Involving Securities Law Violations

High-profile cases, such as those involving insider trading or securities fraud, highlight the importance of stringent securities regulations and enforcement.

Key Questions Answered

What is the purpose of securities laws?
- Securities laws protect investors, ensure fair markets, and facilitate capital formation.
What are the main objectives of securities regulation?
- The main objectives are to protect investors, maintain market integrity, and promote transparency.
What are the key components of securities laws?
- Key components include registration and disclosure requirements, anti-fraud provisions, and regulations on insider trading and market manipulation.
How do securities laws protect investors?
- Securities laws require companies to provide accurate information, preventing fraud and ensuring investors can make informed decisions.
What is insider trading and why is it illegal?
- Insider trading is the buying or selling of securities based on non-public, material information. It is illegal because it undermines market fairness.
How do securities laws prevent market manipulation?
- Securities laws prohibit activities that deceive or mislead investors, ensuring fair and transparent markets.
What is the role of the Securities and Exchange Commission (SEC) in enforcing securities laws?
- The SEC enforces securities laws, conducts investigations, and ensures compliance to protect investors and maintain market integrity.
What is the difference between securities laws and corporate laws?
- Securities laws govern financial instruments and market practices, while corporate laws govern the formation, governance, and operation of companies.
How do securities laws impact the stock market?
- Securities laws ensure transparency, prevent fraud, and maintain fair trading practices, which are essential for the functioning of the stock market.
What are the penalties for violating securities laws?
- Penalties can include fines, disgorgement of profits, imprisonment, and bans from serving as officers or directors of public companies.
What is the difference between registered and unregistered securities?
- Registered securities are registered with the SEC and subject to disclosure requirements, while unregistered securities are typically exempt from these requirements.
How do securities laws affect initial public offerings (IPOs)?
- Securities laws require companies to register with the SEC and disclose important information before going public, ensuring transparency and protecting investors.
What is the role of disclosures in securities laws?
- Disclosures provide investors with vital information about a company’s financial condition and risks, enabling informed investment decisions.
How do securities laws regulate crowdfunding?
- Securities laws establish rules for crowdfunding to protect investors and ensure transparency in this fundraising method.
What is the impact of international securities laws on global markets?
- International securities laws harmonize regulations across borders, facilitating global investment and protecting investors worldwide.

Understanding the myths and realities of securities law is essential for anyone involved in the financial markets. By debunking these myths and addressing the controversies, we can better appreciate the importance of securities law in protecting investors, ensuring market integrity, and promoting fair trading practices. Stay informed, comply with regulations, and continue learning to navigate the complex world of securities law effectively.

Contact Bakhtiari & Harrison if you believe you have been a victim of securities investment fraud.