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.

FINRA Expungement: Key Updates In FINRA Regulatory Notice 23-12

FINRA Regulatory Notice 23-12 introduces a comprehensive set of amendments to the Codes of Arbitration Procedure, specifically addressing the expungement of customer dispute information. This notice is designed to enhance the integrity and transparency of the process within FINRA’s Dispute Resolution Services (DRS) arbitration forum. The changes are aimed at ensuring that the information available to regulators, firms, and the public is accurate and reliable, thus maintaining trust in the financial industry’s regulatory framework.

Expungement, Changes to the Process

The primary purpose of Regulatory Notice 23-12 is to refine and improve the expungement process for customer dispute information. This includes implementing strict requirements for filing expungement requests, establishing a specialized roster of arbitrators with enhanced training, and involving state securities regulators more actively in the expungement hearings. These changes are intended to address concerns about the current process, which has been criticized for inconsistencies and potential abuses.

Importance of Understanding the Notice

Understanding Regulatory Notice 23-12 is crucial for financial professionals, firms, and regulators. It outlines new procedures and requirements that must be followed to ensure a fair and transparent expungement process. Compliance with these updates is essential to maintaining the integrity of FINRA’s records, which are relied upon by investors, regulatory bodies, and financial institutions.

Background

The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees brokerage firms and their registered representatives. FINRA’s mission is to protect investors and ensure the integrity of the securities markets by enforcing rules that promote fair and honest practices. FINRA operates under the supervision of the Securities and Exchange Commission (SEC) and plays a critical role in maintaining market integrity and investor confidence.

History of FINRA Regulatory Notices

FINRA issues regulatory notices to provide guidance, announce rule changes, and inform members of important regulatory updates. These notices are essential tools for maintaining transparency and compliance within the securities industry. They help ensure that all participants are aware of their obligations and the standards they must meet to operate within the regulatory framework established by FINRA and the SEC.

Reason for Issuing Regulatory Notice 23-12

Regulatory Notice 23-12 was issued in response to ongoing concerns about the effectiveness and fairness of the current expungement process for customer dispute information. The amendments aim to address these concerns by introducing more stringent requirements and greater oversight. This ensures that expungement requests are thoroughly reviewed and that the process is not subject to manipulation or abuse.

Summary of Regulatory Notice 23-12

Regulatory Notice 23-12 outlines significant amendments to the Codes of Arbitration Procedure, specifically targeting the expungement of customer dispute information. These changes apply to expungement requests filed during customer arbitrations, simplified arbitrations, and straight-in requests filed separately from customer arbitrations. The amendments are designed to enhance the fairness and transparency of the expungement process.

Key Changes or Updates

Special Arbitrator Roster: The notice requires that straight-in expungement requests be decided by a three-person panel randomly selected from a roster of experienced public arbitrators with enhanced training. This roster, known as the Special Arbitrator Roster, ensures that expungement requests are reviewed by arbitrators with the appropriate expertise and training.
Prohibition of Arbitrator Changes: Parties involved in a straight-in expungement request cannot agree to fewer than three arbitrators, strike any of the selected arbitrators, stipulate to an arbitrator’s removal, or stipulate to the use of pre-selected arbitrators. This measure is intended to prevent parties from manipulating the composition of the arbitration panel.
State Securities Regulators’ Participation: The amendments require notifications to state securities regulators of all expungement requests. Regulators are provided with a mechanism to attend and participate in expungement hearings for straight-in requests. This ensures that regulators have a voice in the expungement process and can provide their perspective on the appropriateness of expungement requests.
Filing Time Limits: The notice imposes strict time limits on the filing of straight-in expungement requests. These limits are designed to ensure that expungement requests are filed in a timely manner and that the process does not become drawn out unnecessarily.
Enhanced Hearing Requirements: The amendments codify and update best practices for expungement hearings, including requirements for the expungement hearing process. This includes facilitating customer attendance and participation, establishing additional requirements for expungement hearings, and codifying the panel’s ability to request any evidence relevant to the expungement request.

Implications for Firms and Individuals

The changes introduced by Regulatory Notice 23-12 have significant implications for both firms and individual brokers. Firms must ensure that their expungement procedures are updated to comply with the new requirements, and individual brokers must be aware of the stricter standards and procedural requirements. Failure to comply with these new rules can result in penalties and damage to professional reputations.

Guidance for Firms

Steps Firms Should Take to Comply with the Notice

Review and Update Procedures: Firms must thoroughly review their current expungement request procedures and update them to comply with the new requirements outlined in Regulatory Notice 23-12. This includes ensuring that all expungement requests are handled according to the new rules and timelines.
Train Staff: It is essential that compliance officers, legal teams, and other relevant staff are trained on the new rules and procedures. This training should cover the specifics of the amendments and ensure that staff understand their roles and responsibilities in the expungement process.
Notify Affected Parties: Firms should inform brokers and advisors about the changes introduced by Regulatory Notice 23-12 and their responsibilities under the new rules. Clear communication is vital to ensure that all parties are aware of their obligations and the steps they need to take to comply.

Best Practices for Implementing the Changes

Maintain Detailed Records: Firms should keep comprehensive records of all expungement requests and related communications. This includes documentation of the request, the evidence presented, and the decision-making process. Detailed records are essential for ensuring transparency and accountability.
Enhance Communication: Firms should foster clear and open communication with brokers, advisors, and affected customers regarding expungement procedures. Keeping all parties informed helps to prevent misunderstandings and ensures that the process runs smoothly.
Collaborate with Legal Counsel: Firms should work closely with legal counsel to navigate complex expungement cases and ensure compliance with the new requirements. Legal professionals can provide valuable guidance and support throughout the expungement process.

Potential Consequences for Non-Compliance

Non-compliance with the new expungement procedures can result in significant penalties, including fines and disciplinary actions from FINRA. Additionally, failure to adhere to the new rules can damage a firm’s reputation and erode trust with clients and regulators. Firms must take the necessary steps to ensure full compliance with Regulatory Notice 23-12 to avoid these consequences.

Guidance for Individuals

How the Notice Affects Individual Brokers and Advisors

Regulatory Notice 23-12 imposes stricter requirements on brokers and advisors seeking expungement. These individuals must now adhere to enhanced procedural requirements and present comprehensive evidence to support their expungement requests. Understanding and complying with these new standards is essential for maintaining a clean and accurate record.

Actions Individuals Should Take to Comply

Educate Themselves: Brokers and advisors should familiarize themselves with the new expungement rules and procedures introduced by Regulatory Notice 23-12. Staying informed about these changes is crucial for compliance and professional integrity.
Seek Legal Assistance: Given the complexity of the new expungement requirements, brokers and advisors should consider working with legal counsel to ensure proper filing and handling of expungement requests. Legal professionals can provide valuable guidance and help navigate the new procedures.
Prepare Comprehensive Evidence: Brokers and advisors must gather and organize all necessary evidence to support their expungement requests. This includes documentation, witness statements, and any other relevant information that demonstrates the inaccuracy or defamatory nature of the information on their record.

Importance of Understanding Their Responsibilities

Understanding and adhering to the new expungement requirements is crucial for brokers and advisors. A clean and accurate record directly impacts career opportunities and professional reputation. Compliance with Regulatory Notice 23-12 ensures that brokers and advisors maintain their credibility and trustworthiness in the eyes of clients and regulators.

What is FINRA Regulatory Notice 23-12?

Regulatory Notice 23-12 details amendments to the Codes of Arbitration Procedure to enhance the process of expunging customer dispute information. The amendments introduce new requirements for filing expungement requests, establish a specialized roster of arbitrators, and involve state securities regulators more actively in the expungement process.

What is the purpose of this notice?

The purpose of Regulatory Notice 23-12 is to refine the expungement process to ensure accurate and reliable records, prevent abuses, and enhance transparency. The changes are designed to address concerns about the current process and improve the overall integrity of FINRA’s records.

What are the key changes introduced in this notice?

Key changes include:

Special Arbitrator Roster: Expungement requests must be decided by a three-person panel from a roster of experienced public arbitrators with enhanced training.
Prohibition of Arbitrator Changes: Parties cannot reduce the number of arbitrators or agree to the removal or substitution of arbitrators selected by the list selection algorithm.
State Securities Regulators’ Participation: Regulators are notified of expungement requests and can attend and participate in hearings.
Filing Time Limits: Strict time limits are imposed on filing expungement requests.
Enhanced Hearing Requirements: Codified best practices for expungement hearings, including requirements for customer attendance and participation and panel’s ability to request relevant evidence.

How will this notice affect my business or investments?

For businesses, the notice requires firms to adhere to stricter expungement procedures, ensuring fair and transparent handling of records. For investments, the notice ensures more reliable and accurate broker records, enhancing investor confidence and trust in the financial markets.

Who is affected by this notice?

The notice affects financial firms, brokers, advisors, and state securities regulators. Firms must update their procedures and train staff, while brokers and advisors must comply with new filing and evidence requirements. State regulators are given a more active role in the expungement process.

What is the deadline for compliance with this notice?

The amendments introduced by Regulatory Notice 23-12 became effective on October 16, 2023. Firms and individuals must comply with the new requirements from this date forward.

What are the penalties for non-compliance with this notice?

Penalties for non-compliance include fines, disciplinary actions from FINRA, and potential damage to professional reputation and client trust. Firms and individuals must take the necessary steps to ensure full compliance with the new expungement procedures.

How can I ensure that my firm is complying with this notice?

To ensure compliance, firms should:

Review and Update Procedures: Thoroughly review and update expungement request procedures to align with the new requirements.
Train Staff: Provide comprehensive training to compliance officers, legal teams, and other relevant staff.
Maintain Detailed Records: Keep comprehensive records of all expungement requests and related communications.
Collaborate with Legal Counsel: Work closely with legal counsel to navigate complex cases and ensure compliance.

Are there any exemptions or exceptions to this notice?

The notice specifies detailed procedural requirements, and requests not meeting these standards can result in ineligibility for arbitration. It is essential for firms and individuals to thoroughly understand and adhere to these requirements to avoid any potential issues.

How does this notice align with other regulatory requirements?

This notice builds on existing FINRA rules and procedures, enhancing the integrity and accuracy of broker records in alignment with broader regulatory standards. The amendments ensure that the expungement process is consistent with FINRA’s overall mission of protecting investors and maintaining fair and honest securities markets.

By adhering to the new requirements and best practices outlined in Regulatory Notice 23-12, firms and individuals can navigate the expungement process effectively, maintain compliance, and uphold the integrity of the financial industry’s records.

The Role of a FINRA Expungement Attorney

Expert Guidance and Advice

A FINRA expungement attorney concentrates on the expungement process and provides guidance and advice tailored to each case’s unique circumstances. They understand the intricate rules and procedures set forth by FINRA and can help stockbrokers navigate the complexities involved.

Case Assessment and Strategy Development

An experienced attorney will thoroughly assess the stockbroker’s case, including reviewing the disclosure and any supporting documentation. Based on this assessment, the attorney will develop a strategic plan to approach the expungement request effectively, ensuring that all necessary criteria are met.

Preparation of Expungement Request

Preparing an expungement request requires meticulous attention to detail and a comprehensive understanding of the evidence. A FINRA expungement attorney will prepare all necessary documents, including the formal expungement request, detailed explanations, and supporting evidence.

Representation in Arbitration Hearings

The arbitration hearing is key to the expungement process, where the stockbroker must present their case before a FINRA arbitration panel. An attorney will represent the stockbroker during these hearings, presenting arguments, submitting evidence, and addressing any questions or concerns the panel raises.

Gathering and Presenting Evidence

One of the most critical aspects of a successful expungement request is the quality of evidence presented. A FINRA expungement attorney will assist in gathering all relevant evidence, such as witness statements, documents, and expert testimony, to support the claim that the disclosure is factually inaccurate or defamatory.

Understanding the Burden of Proof

The stockbroker bears the burden of proof in an expungement request. This means they must demonstrate that the information is false or misleading. An experienced attorney will help prepare a robust case that meets this burden of proof, increasing the likelihood of a successful outcome.

Dealing with Opposition

During the expungement process, opposition may arise from former employers or other parties who dispute the stockbroker’s claim. A FINRA expungement attorney is skilled in handling such opposition, presenting counterarguments, and negotiating settlements where appropriate.

The Expungement Process

Step 1: Filing the Expungement Request

The attorney will begin by filing a formal request for expungement through a statement of claim with FINRA, detailing the reasons for seeking removal of the information from the stockbroker’s record.

Step 2: Review by the Arbitration Panel

After filing the request, an arbitration panel will review the case to determine whether it meets the criteria for expungement. The attorney will ensure that all procedural requirements are met and that the case is presented effectively.

Step 3: Arbitration Hearing

If the panel finds merit in the request, a hearing will be scheduled. The attorney will prepare the stockbroker for the hearing, organize the evidence, and present the case to the panel. This includes addressing any questions or concerns raised during the hearing.

Step 4: Decision and Approval

Following the hearing, the arbitration panel will make a decision based on the evidence presented. If the panel approves the expungement, FINRA will update the stockbroker’s record accordingly. The attorney will ensure that the expunged information is properly removed and that the stockbroker’s BrokerCheck record is updated.

Benefits of Hiring a FINRA Expungement Attorney

Expertise in FINRA Rules and Procedures

A FINRA expungement attorney has knowledge of FINRA’s rules and procedures, ensuring that the expungement request is handled correctly and efficiently.

Increased Chances of Success

An attorney significantly increases the chances of a successful expungement by providing expert guidance, gathering compelling evidence, and representing the stockbroker in hearings.

Peace of Mind

Navigating the expungement process can be stressful and time-consuming. Hiring an attorney allows stockbrokers to focus on their careers while the attorney handles the complexities of the expungement request.

Professional Representation

An attorney provides professional representation, ensuring that the stockbroker’s case is presented in the best possible light. This includes addressing any legal challenges and advocating on behalf of the stockbroker throughout the process.

A FINRA expungement attorney plays a vital role in helping stockbrokers remove false or misleading disclosures from their BrokerCheck records. An attorney significantly increases the likelihood of a successful expungement by providing guidance, preparing a robust case, and representing the stockbroker in arbitration hearings. For stockbrokers seeking to protect their professional reputation and career opportunities, hiring a FINRA expungement attorney is an essential step in navigating the complex expungement process.