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.

Can I Sue My Stockbroker? Legal Options

Overview of Stockbroker Misconduct and Investor Rights

What is Stockbroker Misconduct?

Definition and Examples: Stockbroker misconduct refers to unethical or illegal actions taken by a stockbroker that harm their clients’ investments. Examples include unauthorized trading, misrepresentation, fraud, and breach of fiduciary duty.
Common Reasons for Investor Dissatisfaction: Investors may become dissatisfied due to significant financial losses, unapproved transactions, or being misled about the risks and returns of their investments.

Types of Stockbroker Misconduct

Unauthorized Trading: Trading securities without the investor’s consent or approval.
Churning and Excessive Trading: Excessive buying and selling of securities to generate commissions.
Fraud and Misrepresentation: Providing false or misleading information to investors about their investments.
Failure to Diversify Investments: Not spreading investments across different assets to minimize risk.
Breach of Fiduciary Duty: Failing to act in the best interest of the investor.

Understanding Your Rights as an Investor

Legal Protections: Investors are protected by various laws and regulations that ensure brokers act ethically and in the best interest of their clients.
Regulatory Bodies: Organizations like FINRA (Financial Industry Regulatory Authority) and the SEC (Securities and Exchange Commission) oversee and enforce these regulations.

Legal Options for Addressing Stockbroker Misconduct

Filing a Complaint with the Brokerage Firm

Steps to File a Complaint: Contact the brokerage firm’s compliance department, provide detailed information about the misconduct, and request an internal investigation.
Expected Outcomes: The brokerage firm may offer a resolution, such as compensation or corrective actions against the stockbroker.

Reporting the Misconduct to Regulatory Agencies

Role of FINRA and the SEC: These agencies regulate and monitor stockbroker activities to protect investors.
How to File a Report: Submit a formal complaint through the agency’s online portal or via mail, including all relevant evidence and details.

Mediation or Arbitration

Differences Between Mediation and Arbitration: Mediation involves a neutral third party facilitating a settlement, while arbitration involves a binding decision from an arbitrator.
How to Initiate the Process: Contact FINRA or another arbitration forum, file a claim, and follow the outlined procedures.

Lawsuits for Negligence

Grounds for Suing for Negligence: Prove that the stockbroker failed to exercise reasonable care in managing the investment, resulting in financial losses.
Legal Processes Involved: File a lawsuit in civil court, present evidence of negligence, and seek compensation for damages.

Suing for Breach of Contract

Identifying a Breach of Contract: Show that the stockbroker violated the terms of the investment agreement.
Legal Steps to Take: File a lawsuit, provide evidence of the breach, and seek remedies such as damages or contract enforcement.

Fraud and Misrepresentation Claims

Definition of Fraud and Misrepresentation: Intentionally providing false information or concealing material facts about an investment.
Legal Recourse Available: File a lawsuit for damages, report to regulatory agencies, and seek punitive actions against the stockbroker.

Churning and Excessive Trading

Identifying Churning Activities: Monitor account statements for excessive and unnecessary trades that harm your investment.
Legal Actions to Take: File a complaint with the brokerage firm, report to regulatory agencies, seek arbitration, or file a lawsuit for damages.

Failure to Follow Instructions

Documenting Failure to Follow Instructions: Keep detailed records of your instructions and the stockbroker’s actions related to your investment.
Legal Options Available: File a complaint with the brokerage firm, seek arbitration, or pursue legal action for compensation.

Unauthorized Trading

Recognizing Unauthorized Trades: Regularly review account statements for unapproved transactions affecting your investment.
Steps to Take Legal Action: Report to regulatory agencies, file a complaint with the brokerage firm, and consider arbitration or a lawsuit.

Failure to Diversify Investments – Impact of Not Diversifying Investments: Increased risk and potential financial losses. – Legal Recourse Options: File a complaint with the brokerage firm, report to regulatory bodies, and seek compensation through legal channels, including lawsuits.

The Importance of Documentation and Evidence

Keeping Records of All Transactions and Communications

Importance of Detailed Records: Essential for proving misconduct and supporting your case.
How to Maintain Proper Documentation: Save emails, account statements, and any correspondence with your stockbroker related to your investments.

Gathering Evidence of Misconduct

Types of Evidence Needed: Transaction records, communications, and any documents showing unauthorized actions or misleading information about your investments.
How to Compile Evidence Effectively: Organize and store evidence securely, and make copies for legal proceedings.

Working with a Securities Lawyer

Benefits of Hiring a Securities Lawyer: Expertise in securities law, navigating legal processes, and increasing the chances of a successful outcome.
How to Choose the Right Lawyer: Look for experience in securities litigation, positive client reviews, and a clear fee structure.

Tips for Choosing the Right Legal Option

Assessing the Severity of the Misconduct

Evaluating the Impact on Your Investments: Determine the financial losses and emotional impact of the misconduct.
Prioritizing Legal Options Based on Severity: Choose the most appropriate legal action considering the severity and evidence.

Considering the Cost and Time Involved in Pursuing Legal Action

Cost-Benefit Analysis of Legal Actions: Weigh the potential recovery against the costs of legal proceedings.
Understanding the Timeline for Different Legal Options: Know the duration of mediation, arbitration, and lawsuits.

Evaluating the Strength of Your Evidence

Importance of Strong Evidence: Crucial for proving misconduct and winning your case.
How to Assess the Strength of Your Case: Consult with a lawyer to evaluate your evidence and legal standing.

Seeking Advice from a Trusted Financial Advisor or Lawyer

Consulting Professionals Before Taking Action: Gain insights and recommendations from experienced advisors or lawyers.
How to Find Reliable Advice: Look for professionals with a strong track record and positive testimonials.

Key Questions Answered

What are the grounds for suing a stockbroker?

Investors can file a lawsuit against a stockbroker for several reasons, including negligence, fraud, misrepresentation, breach of fiduciary duty, unauthorized trading, and failure to follow instructions. To establish a valid case, the investor must prove that the stockbroker’s actions directly caused financial harm to their investments.

Can I sue my stockbroker for investment losses?

Yes, you can file a lawsuit against your stockbroker for investment losses if you can demonstrate that the losses resulted from the stockbroker’s misconduct or negligence. It is important to gather evidence showing that the stockbroker’s actions deviated from standard practices and directly led to your financial losses.

What is the statute of limitations for suing a stockbroker?

The statute of limitations for filing a lawsuit against a stockbroker varies by state and the type of claim. Generally, it ranges from two to six years from the date of the misconduct or when the investor discovered the misconduct. Consulting with a securities lawyer can help determine the specific time frame applicable to your case.

Can I sue my stockbroker for misrepresentation or fraud?

Yes, investors can file a lawsuit for misrepresentation or fraud if the stockbroker intentionally provided false information or concealed material facts about an investment, leading to financial losses. Successful claims require proving that the stockbroker’s fraudulent actions directly caused the investor’s damages.

How do I prove that my stockbroker acted negligently?

To prove negligence, an investor must show that the stockbroker failed to exercise reasonable care in managing the investment. This involves demonstrating that the stockbroker’s actions deviated from industry standards and directly resulted in financial harm to the investment.

Can I sue my stockbroker for breach of fiduciary duty?

Yes, if a stockbroker fails to act in the best interest of the investor, it constitutes a breach of fiduciary duty. Investors can file a lawsuit for damages resulting from such breaches, provided they can show that the stockbroker’s actions were not aligned with their fiduciary obligations.

What are my options if my stockbroker engages in unauthorized trading?

Investors can file a complaint with the brokerage firm, report the misconduct to regulatory agencies like FINRA and the SEC, seek arbitration or mediation, and pursue legal action for damages caused by unauthorized trading, including filing a lawsuit.

Can I sue my stockbroker for churning my account?

Yes, churning, or excessive trading to generate commissions, is illegal. Investors can file complaints with regulatory agencies, seek arbitration, or file lawsuits to recover damages caused by churning.

What is the process for filing a complaint against a stockbroker?

To file a complaint, gather all relevant evidence, contact the brokerage firm, and provide a detailed account of the misconduct. If unsatisfied with the firm’s response, report the issue to regulatory bodies like FINRA and the SEC, and consider legal action, including filing a lawsuit if necessary.

Can I sue my stockbroker for failure to follow my investment instructions?

Yes, if a stockbroker fails to follow explicit investment instructions, investors can seek recourse through complaints to the brokerage firm, regulatory agencies, arbitration, or legal action for resulting damages, including filing a lawsuit.

What are the potential damages I can recover in a lawsuit against my stockbroker?

Potential damages in a lawsuit against a stockbroker include compensation for financial losses, legal fees, punitive damages, and sometimes additional penalties if the misconduct involved fraud or willful negligence.

Can I sue my stockbroker for recommending unsuitable investments?

Yes, if a stockbroker recommends investments that are unsuitable based on the investor’s risk tolerance, financial situation, and investment objectives, the investor can file complaints and pursue legal action, including filing a lawsuit for damages incurred.

How do I know if I have a valid case against my stockbroker?

To determine if you have a valid case, consult with a securities lawyer who can evaluate the evidence, assess the stockbroker’s actions, and advise on the likelihood of success in pursuing legal action, including filing a lawsuit.

Resources

Guides and PDFs on Stockbroker Misconduct: Access comprehensive guides and legal resources.
Additional Resources for Understanding Legal Options: Utilize online tools and legal databases for further research.

This detailed guide aims to help investors understand their rights and the legal options available when dealing with stockbroker misconduct. By addressing key questions and providing actionable steps, investors can better navigate the process of seeking justice and compensation, including filing a lawsuit if necessary.