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.

How to Avoid Violating FINRA Rule 3280

Steering through the complexities of financial regulations can be a formidable challenge, particularly when dealing with rules like FINRA Rule 3280. This rule governs private securities transactions by associated persons of a FINRA member firm, making it crucial for financial professionals to fully understand and comply with its requirements. How to Avoid Violating FINRA Rule 3280

Non-compliance with FINRA Rule 3280 can result in severe penalties, including fines, disciplinary actions, and damage to a firm’s reputation and client trust. Therefore, understanding the rule and implementing effective compliance strategies is essential for every broker-dealer, compliance officer, and financial advisor.

In this article, we’ll explore the key aspects of FINRA Rule 3280 and offer actionable insights to help you avoid violations. We’ll also discuss the importance of having expert legal representation, especially when facing a FINRA investigation.

Understanding FINRA Rule 3280

FINRA Rule 3280, also known as the Private Securities Transactions Rule, is a critical regulation designed to protect investors and uphold market integrity. It applies to associated persons of a FINRA member firm and regulates their involvement in securities transactions outside the scope of their employment.

Key aspects of Rule 3280 include:

Written Notice: Associated persons must provide written notice to their firm before participating in private transactions.
Full Disclosure: All material facts related to the transaction must be disclosed.
Firm Approval: Transactions require the firm’s approval before proceeding.
Record-Keeping: Approved transactions must be recorded on the firm’s books.

Understanding these requirements is the first step toward compliance.

The Purpose of FINRA Rule 3280

The primary objective of Rule 3280 is to prevent fraudulent and manipulative practices in the securities market. By ensuring that firms are aware of their associated persons’ external activities, Rule 3280 promotes transparency and ethical conduct within the industry.

Defining Private Securities Transactions

Private securities transactions, or “selling away,” involve trades outside a person’s regular employment and are not recorded on the firm’s books. These can include private placements, real estate investments, or other non-public investment opportunities. Rule 3280 applies regardless of whether compensation is received.

The Importance of Compliance

Adhering to Rule 3280 is crucial for maintaining industry trust and ensuring that securities transactions are transparent and ethical. Compliance helps prevent conflicts of interest and protects investors from undisclosed transactions. It is also a legal requirement, integral to upholding the integrity of financial operations.

Consequences of Non-Compliance

Failing to comply with Rule 3280 can lead to severe consequences, including disciplinary actions by FINRA, such as fines, suspensions, or even expulsion from the industry. FINRA determines sanctions based on several key considerations:

The dollar volume of sales: Higher sales volumes increase the likelihood of severe sanctions.
The number of customers affected: If multiple customers were involved in the unauthorized transaction, this can aggravate penalties.
The length of time the selling away activity occurred: Extended violations are considered more serious.
Nature of the product sold: If the product violates securities laws or rules, sanctions can be more severe.
Disclosure of proprietary interest: Failing to disclose a financial or proprietary interest in the selling enterprise can lead to increased penalties(3280).

These factors contribute to monetary sanctions, ranging from fines of $5,000 to $40,000. Additionally, violators could face suspensions, ranging from 10 business days to a permanent bar from the industry, depending on the scope and severity of the violation(3280).

Steps for Compliance with Rule 3280

To ensure compliance with Rule 3280, follow these steps:

Provide Written Notice: Notify your member firm in writing before engaging in any private transactions, detailing the transaction and your role.
Review and Approval: The firm reviews the notice, assesses potential risks and conflicts, and decides whether to approve the transaction.
Supervisory Responsibility: If approved, the firm must oversee the transaction and record it in its books.

A thorough written notice must include all material facts about the proposed transaction, including your role and any compensation. Submitting this notice well in advance allows the firm adequate time for review.

Supervisory Responsibilities and Record-Keeping

Once approved, the firm assumes supervisory responsibility and must record the transaction in its books. This helps mitigate risks associated with “selling away,” particularly where the respondent has misled the firm or failed to disclose material facts. FINRA emphasizes that if the associated person fails to provide written notice or engages in unauthorized activity after the firm has rejected the proposal, the consequences can be substantial(3280).

Best Practices for Rule 3280 Compliance

Adopting best practices helps maintain compliance with Rule 3280:

Training and Education: Regular training should cover Rule 3280’s requirements and the firm’s compliance procedures.
Monitoring and Auditing: Implement regular monitoring and audits to identify and address potential compliance issues.
Technology and Tools: Utilize compliance software and data analysis tools to manage and track transactions efficiently.

Case Studies: Learning from Past Violations

Examining past violations of Rule 3280 can provide valuable insights. Cases involving failure to provide written notice or inadequate supervision highlight the importance of robust compliance measures. Principal considerations like the number of customers impacted and the dollar amount of sales involved are critical in determining the severity of the sanction(3280).

For instance, a broker engaging in unauthorized transactions involving over $1 million in sales could face a suspension of 12 months or more, potentially leading to a bar from the industry if aggravating factors are present. These cases highlight the importance of thorough compliance procedures to avoid these severe penalties(3280).

Creating a Culture of Compliance

A strong culture of compliance starts with clear policies, regular training, and accountability. Senior management should lead by example, demonstrating a commitment to compliance.

The Role of Senior Management

Senior management plays a crucial role in fostering a culture of compliance. They should set the tone for adherence to Rule 3280 and allocate resources to support compliance efforts.

Communication and Transparency

Establish clear channels for reporting potential compliance issues and maintain transparency with clients regarding private securities transactions. Regular communication with FINRA can also help firms stay informed and proactive.

Proactive Compliance is Key

Proactive compliance is the best strategy for avoiding violations of Rule 3280. This involves continuous monitoring, staying updated with FINRA guidance, and integrating compliance into all operational aspects.

Why Hiring Bakhtiari & Harrison is Crucial to Avoiding Violations of FINRA Rule 3280

When facing a FINRA investigation, especially one involving an 8210 Request, securing experienced legal representation is vital. Bakhtiari & Harrison offer an unparalleled experience that can significantly impact your case.

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.

Bakhtiari & Harrison is an AV-rated, battle-tested law firm focused on the worldwide representation of clients in complex arbitration, litigation, and related legal services in securities industry matters.

The firm’s partners have extensive experience in securities, employment and regulatory matters. Our focus is on delivering strategic and creative client-centric solutions. The firm represents financial services professionals, registered investment advisors and broker-dealers in employment matters, industry disputes and regulatory investigations.