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.

Exercising Discretion Under FINRA Rules 3260(b) and 2010 – 4 Factors to Consider

If you’ve been accused of exercising discretion in customer accounts, you may face severe consequences that could impact your career. Understanding FINRA Rules 3260(b) and 2010 is crucial for your defense. At Bakhtiari & Harrison, we help stockbrokers navigate these complex regulations and defend their professional reputation. If you’re in this situation, contact us today for the legal representation you need.

What Is FINRA Rule 3260(b)?

FINRA Rule 3260(b) deals with when a broker can make decisions in a customer’s account without asking for permission each time, which is known as “discretion.” To legally use discretion in a customer’s account, a broker must obtain written permission from both the customer and their firm. Without this written authorization, the broker’s actions could be in violation of the rule.

What Is FINRA Rule 2010?

FINRA Rule 2010 requires brokers to act ethically in all professional dealings. If a broker uses discretion in a customer’s account without proper authorization, it is considered a violation of ethical standards, which may result in disciplinary actions. Violating Rule 3260(b) often leads to violations of Rule 2010 because unauthorized discretion is seen as unethical.

What Are the Penalties for Violating FINRA Rules 3260(b) and 2010?

You could face fines, suspensions, or even a permanent bar from the industry if you violate these rules. The severity of the penalties depends on several factors, including whether you had written authorization and whether your firm allowed discretionary trading. Fines for these violations typically range from $2,500 to $10,000, while suspensions can last from 10 days to two months. A broker could be permanently banned from working in the securities industry in more severe cases.

Factors FINRA Considers When Determining Penalties

FINRA uses several factors to decide the appropriate penalties for brokers who violate Rules 3260(b) and 2010. These include:

Did the customer give express or implied permission for discretion?Express permission is written approval. Implied permission could involve verbal agreement or other actions suggesting the customer trusted the broker to act on their behalf. The type of permission matters when FINRA decides the penalties.
Did your firm have policies against discretionary trading?If your firm prohibited discretionary trading, FINRA may impose harsher penalties for breaking both the firm’s rules and FINRA’s regulations.
Did your firm specifically prohibit you from using discretion?Even if the customer gave you permission to trade, violating your firm’s policies can increase the severity of FINRA’s sanctions.
Did your discretion go beyond time and price decisions?Brokers can decide when to execute trades and at what price if the customer has already chosen what securities to buy or sell. Going beyond this by selecting securities without approval is a more serious violation.

Frequently Asked Questions About FINRA Rules 3260(b) and 2010

Here are 10 common questions stockbrokers ask when they face accusations of violating these rules.

What is discretion in a customer account?

Discretion allows a broker to make decisions about which securities to buy or sell, how much to trade, and when to execute trades without asking the customer for permission each time. To legally use discretion, brokers need written authorization from both the customer and their firm. Exercising discretion without proper and prior authorization can be a serious issue.

Do I need written approval from both the customer and my firm to exercise discretion?

Yes. FINRA Rule 3260(b) requires brokers to get written approval from both the customer and their firm before exercising discretion in an account. Without both, the broker could face penalties.

What is time and price discretion?

Time and price discretion means the broker can decide the best time and price to make a trade, but only after the customer has chosen what to trade. Full discretion allows the broker to decide which securities to trade and how much to buy or sell.

What if a customer verbally gives permission to trade, but it’s not in writing?

Verbal permission is not enough. Under FINRA rules, you must have written authorization to exercise discretion. Even if the customer verbally agrees, failing to get written approval can result in penalties.

Can my firm stop me from using discretion even if my customer agrees?

Yes. Your firm’s policies may prohibit discretionary trading even if your customer grants you permission to make trades. If your firm’s rules prevent discretionary trading, you must follow those policies or risk penalties from both your firm and FINRA.

How does FINRA decide if I violated Rule 3260(b)?

FINRA will examine whether you had written authorization from the customer and your firm in exercising discretion. They will also check if your trades went beyond time and price decisions and whether your actions were consistent with the customer’s investment objectives.

What penalties could I face for unauthorized discretionary trading?

Penalties for unauthorized discretionary trading include fines of $2,500 to $10,000, suspensions lasting 10 business days to two months, and in more serious cases, a permanent bar from the securities industry.

What is FINRA Rule 2010, and why does it matter?

FINRA Rule 2010 requires brokers to maintain high ethical standards in their business dealings. Violating Rule 3260(b) by making unauthorized trades or unlawfully exercising discretioncan also lead to a violation of Rule 2010 because it is seen as unethical.

How can I defend myself if accused of violating Rule 3260(b)?

There are several defenses available. You may argue that the customer gave implied discretion or that your actions aligned with their goals. Bakhtiari & Harrison can help you review your case and develop a defense strategy based on the facts.

How can Bakhtiari & Harrison help if I’m accused of unauthorized discretionary trading?

At Bakhtiari & Harrison, we have extensive experience representing stockbrokers accused of FINRA violations including exercising discretion. We will review your case, look at your firm’s policies, and develop a defense to protect your career. Contact us today to discuss your situation and start building your defense.

What Should You Do If Accused of Violating FINRA Rules 3260(b) and 2010?

If you’re facing accusations of violating FINRA Rules 3260(b) and 2010 for exercising discretion, it’s important to act quickly. These accusations can result in fines, suspensions, or even a permanent bar from the industry. Legal representation is crucial to protecting your future and reputation.

Why Hiring Bakhtiari & Harrison is Crucial in an Exercising Discretion Case

At Bakhtiari & Harrison, we concentrate on defending stockbrokers accused of violating FINRA rules. If you’re facing accusations of unauthorized discretionary trading or exercising discretion contact us today. We’ll help you navigate the complexities of the case and fight for the best possible outcome.

Ryan Bakhtiari, a highly esteemed attorney, has an exceptional background that includes serving as President of PIABA (Public Investors Arbitration Bar Association) and chairing the FINRA NAMC (National Adjudicatory Council) Committee. His extensive experience in securities law and deep understanding of FINRA’s regulatory framework make him uniquely qualified to handle complex investigations and ensure your rights are effectively protected.

David Harrison brings a wealth of litigation experience to the table. His career includes time at the District Attorney’s Office, where he developed his litigation skills, and as in-house counsel at Morgan Stanley Dean Witter, where he represented the firm and its stockbrokers. David also held a Series Seven license from his time at Shearson Lehman Brothers, further enhancing his understanding of the financial industry and its regulatory demands.

Being accused of violating FINRA Rules 3260(b) and 2010 is a serious matter that can damage your career. Whether the issue involves exercising discretion or failure to follow your firm’s policies, these violations can lead to significant fines, suspensions, or a permanent ban from the industry.

Understanding these rules and seeking legal representation as soon as possible is critical to defending your case. At Bakhtiari & Harrison, we stand ready to help you protect your career and reputation. Contact us today to get the support and representation you need.