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.

Protecting Our Kehillah: Unmasking the Danger of Affinity Fraud in Alternative Investments & Private Placements

At the heart of the Orthodox Jewish community lies an incredible strength: our shared values, deeply rooted traditions, and unwavering commitment to supporting one another. We build institutions – our shuls, yeshivas, and chesed organizations – on foundations of trust and mutual reliance. This interconnectedness, this achdus, is a source of immense pride and support. We often turn to fellow community members for advice, recommendations, and, yes, even investment opportunities. We trust the familiar face, the shared background, the person who understands our values and speaks our language.

You, as a member of this vibrant community, value financial stability for your family, ensuring you can provide for yeshiva tuition, support community causes, and plan for a secure future. You work hard for your resources and seek responsible ways to grow them. You believe in doing business with integrity and expect the same from others, especially those within the frum world.

But this very strength, this inherent trust, can be cynically exploited. A devastating threat known as affinity fraud preys upon the close-knit nature of communities like ours. Dishonest individuals, sometimes from within the community itself or pretending to be, leverage these bonds of trust to promote fraudulent investment schemes, often involving complex alternative investments and private placements.

The external problem is the sophisticated fraudster weaving a believable story. The internal problem is the conflict this creates within you: the fear of losing your hard-earned money, the potential embarrassment or shame if an investment pitched by a “friend” goes sour, and the reluctance to question someone who seems trustworthy or is respected within the community. And the philosophical problem? It is fundamentally wrong, a violation of the trust that underpins our community, for someone to exploit these sacred bonds for personal gain.

At Bakhtiari & Harrison, we understand the unique dynamics of the Orthodox Jewish community and the devastating impact affinity fraud can have – not just financially, but emotionally and socially. We’ve seen firsthand how trust can be weaponized, and we are dedicated to helping victims fight back.

Table of Contents

What is Affinity Fraud, and Why is Our Community a Target?

Affinity fraud isn’t unique to any single group, but it thrives in environments where trust is high and social networks are strong. It occurs when fraudsters target members of identifiable groups, such as religious communities, ethnic groups, or professional organizations. The scammer often is (or pretends to be) a member of the group.

Why the Orthodox Jewish Community?

High Level of Trust: As mentioned, we often place significant faith in fellow members, assuming shared values translate to ethical business practices. A recommendation from someone who attends the same shul or whose children attend the same yeshiva carries immense weight.
Close-Knit Networks: Information, both good and bad, travels quickly through our networks. Fraudsters exploit this by gaining the trust of a few influential individuals, knowing their endorsement will spread rapidly.
Cultural & Linguistic Familiarity: Scammers may use Yiddish or Hebrew phrases, reference shared cultural touchstones or emphasize charitable giving (tzedakah) to build rapport and lower defenses.
Desire for Community Benefit: Sometimes, fraudulent schemes are pitched as investments that will also benefit the community (e.g., funding a local project, supporting an institution), adding another layer of emotional appeal and making due diligence seem almost disloyal.
Reluctance to Report: Victims may hesitate to report fraud, especially if the perpetrator is a community member. They may fear social repercussions, embarrassment, or damaging the community’s reputation. Fraudsters count on this silence.

The Lure and Risk of Alternative Investments & Private Placements

Affinity fraudsters often push complex, opaque investments that are difficult for the average investor to understand or verify. Alternative investments fall outside traditional categories, such as stocks, bonds, and cash. Examples include:

Hedge Funds
Private Equity
Venture Capital
Real Estate Investment Trusts (REITs) – especially non-traded REITs
Oil and Gas Partnerships
Promissory Notes
Private Placements (also known as Regulation D offerings)

Private placements are particularly common vehicles for fraud. These are securities offerings that are not registered with the Securities and Exchange Commission (SEC) and are sold directly to a limited number of accredited (wealthy or sophisticated) investors. While legitimate private placements exist and can fund valuable enterprises, they also present significant risks:

Less Regulation & Transparency: Because they aren’t SEC-registered, there’s less public information available and less regulatory oversight compared to public stocks. Disclosures might be minimal or misleading.
Higher Potential for Fraud: The lack of transparency makes it easier for fraudsters to hide misrepresented information, conceal conflicts of interest, or simply steal investor funds.
Illiquidity: It’s often difficult or impossible to sell your investment quickly. Your money can be tied up for years, even if the investment sours. Fraudsters exploit this, knowing you can’t easily pull your money out.
Complexity: These investments often involve intricate structures, complex fee arrangements, and dense legal documents (like the Private Placement Memorandum or PPM) that require significant expertise to evaluate.

How Affinity Fraudsters Use These Investments:

The scammer, leveraging community trust, might approach you with an “exclusive” or “can’t-miss” opportunity in a private real estate deal, a new tech startup, or a high-yield promissory note, available “only to our community members.” They’ll emphasize the potential for high returns, downplay the risks, and create a sense of urgency. Because the recommendation comes from a trusted source, the natural inclination is to bypass the rigorous scrutiny one might apply to an unknown broker. This is exactly what the fraudster wants.

Red Flags: Recognizing the Warning Signs

Hashem gave us intellect (sechel) to use. Protecting your assets requires vigilance. Be wary of:

Guaranteed High Returns with Little Risk: This is the oldest trick in the book. All investments carry risk. Exceptionally high, guaranteed returns are almost always a sign of fraud. Legitimate investments simply cannot promise that.
Pressure to Invest Quickly: Fraudsters don’t want you to think too hard or do your research. They’ll create artificial deadlines or suggest the opportunity will disappear if you don’t act now.
“Exclusive” or “Secret” Deals: While some legitimate investments are limited, excessive secrecy or claims that it’s a special deal “just for our community” should raise suspicion. Why isn’t it available more broadly if it’s so good?
Unregistered Investments or Sellers: Crucially, verify whether the investment itself is registered (unless it’s a legitimate private placement exempt from registration) and, just as importantly, if the person selling it is licensed. You can check licenses with:
FINRA BrokerCheck: Checks licensing and disciplinary history of brokers and firms.
- SEC Investment Adviser Public Disclosure (IAPD): Checks licensing for investment advisors.
- Your State Securities Regulator.
Difficulty Getting Information or Documentation: Legitimate promoters should readily provide detailed written information, including a prospectus or Private Placement Memorandum (PPM) for private offerings. If they are evasive, can’t answer basic questions, or the documents are vague or unprofessional, walk away.
Overly Complex Strategies: If you cannot understand the investment, and the person selling it cannot explain it clearly, be very cautious. Complexity can be used to hide fraud.
Issues with Paperwork or Payments: Account statements that are inconsistent, missing, or hard to understand; difficulty withdrawing funds; or requests to make payments directly to an individual or an unfamiliar entity are major red flags.
Appeals Based Solely on Shared Affiliation: If the main selling point is “trust me, I’m part of the community” rather than the merits and risks of the investment itself, be extremely wary.

Bakhtiari & Harrison is Here to Help

Navigating the world of investments, particularly complex alternatives and private placements, can be challenging. When community ties blur the lines and the devastating possibility of affinity fraud looms, it can feel overwhelming and isolating. You might feel unsure where to turn, hesitant to voice concerns that could disrupt community harmony, or paralyzed by the fear of financial loss.

This is where Bakhtiari & Harrison steps in. We serve as your guide through this complex and potentially treacherous landscape.

We Empathize: We understand the profound sense of betrayal that comes with affinity fraud. We recognize the unique pressures and dynamics within the Orthodox Jewish community and approach these sensitive situations with cultural understanding and discretion.
We Have Authority: We are experienced securities litigation and FINRA arbitration attorneys. Our practice focuses specifically on representing investors who have been harmed by stockbroker misconduct, investment fraud, and negligence, including complex cases involving alternative investments and private placements. We have the knowledge and experience to dissect intricate financial schemes and hold wrongdoers accountable.

Prevention and Action

We believe in empowering you with knowledge. Here’s a plan to help you protect yourself and know what to do if you suspect fraud:

Steps to Safeguard Your Investments

Independent Verification is Key: Do not rely solely on the reputation or word of someone within the community, regardless of how respected they appear. Verify the seller’s license independently and research the investment itself thoroughly. Ask for and scrutinize all documentation.
Scrutinize Private Placements: If considering a private placement, demand the Private Placement Memorandum (PPM). Read it carefully, paying attention to risk factors, fees, conflicts of interest, and background information on the managers. If it’s dense or confusing, get independent help understanding it before investing.
Ask Tough Questions: Don’t be afraid to appear skeptical. Ask about risks, fees, liquidity, how the promoter gets paid, and what happens if the investment fails. A legitimate professional will welcome informed questions; a fraudster will often become defensive or evasive.
Diversify Your Assets: Avoid concentrating too much of your portfolio in any single investment, especially illiquid, high-risk alternatives or private placements. Diversification is a fundamental principle of sound investing.
Seek Truly Independent Advice: Consult with a qualified financial advisor or an attorney who is not connected to the person promoting the investment. Get an unbiased second opinion before committing funds.

What to Do If You Suspect Fraud

If you believe you may have been targeted or have fallen victim to investment fraud:

Gather All Documentation: Collect every piece of paper and digital communication related to the investment – emails, contracts, account statements, promotional materials, notes from conversations, cancelled checks.
Document Everything: Write down a timeline of events, including dates of conversations, specific promises made, and names of everyone involved.
Cease Communication: Depending on the situation, it may be best to stop direct communication with the promoter until you have legal counsel.
Contact Experienced Legal Counsel Immediately: Do not delay. There are strict time limits, known as statutes of limitations or rules of eligibility, for filing legal claims such as FINRA arbitration or lawsuits. Contacting a law firm like Bakhtiari & Harrison promptly is crucial to preserving your rights. We offer confidential consultations to assess your situation.

Don’t Suffer in Silence

If you suspect that you or someone you know within the Orthodox Jewish community has been misled, defrauded, or given unsuitable investment advice, particularly concerning alternative investments, private placements, or by someone leveraging community trust:

Contact Bakhtiari & Harrison today.

Taking the first step can be difficult, especially when community ties are involved. We assure you that consultations are confidential. We are here to listen, evaluate your potential claims, and explain your legal options for seeking recovery.

What’s at Stake? Avoiding Financial and Communal Devastation

Ignoring the red flags or failing to act when you suspect fraud can lead to devastating consequences:

Complete Loss of Investment: Your hard-earned savings, intended for retirement, tuition, or other essential needs, could vanish.
Emotional Distress: The feeling of betrayal, shame, and anxiety can take a heavy toll on your well-being and family life.
Damaged Community Trust: Unchecked affinity fraud erodes the very fabric of trust that holds our community together. It can create suspicion and division.
Emboldened Fraudsters: When victims remain silent, fraudsters are free to continue targeting others within the community.

The Path Forward: Seeking Justice and Protecting Our Community

By taking action, you can achieve a better future:

Potential Financial Recovery: Through legal avenues such as FINRA arbitration or lawsuits, we can work to recover your investment losses.
Holding Wrongdoers Accountable: Bringing fraud to light ensures that those who exploit trust face consequences for their actions.
Protecting Others: Your courage to step forward can prevent others in the community from falling victim to the same scheme.
Restoring Peace of Mind: Seeking justice can help you move forward from the emotional trauma of being victimized.
Strengthening Community Vigilance: Raising awareness about affinity fraud helps fortify the entire kehillah against future threats.

Vigilance and Action Protect Our Shared Future

Our community’s strength lies in our unity and shared values. Let’s not allow that strength to be turned against us. By exercising prudent due diligence, questioning opportunities even when presented by familiar faces, and understanding the risks inherent in complex investments, such as private placements, we can protect ourselves and our families.

And if the unthinkable happens – if you believe you have been targeted by an investment scam or stockbroker misconduct – remember that you are not alone. Bakhtiari & Harrison is here to provide experienced legal guidance and advocate fiercely on your behalf. Don’t let fear or misplaced loyalty prevent you from seeking justice. Contact us for a confidential consultation. Let us help you fight back and protect the financial integrity of our cherished community.