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.

Is US Securities Regulation Enough? 5 Surprising Facts

US securities regulation includes rules and laws that control the securities industry. The Securities and Exchange Commission (SEC) oversees this industry. These regulations protect investors and keep the market fair.

Fact 1: The SEC Enforces Securities Regulation

The SEC enforces securities regulation. It started in 1934 after the 1929 stock market crash. The SEC’s job is to protect investors, keep markets fair, and help companies raise money.

The government enforces laws to regulate federal securities. These laws include the Securities Act of 1933 and the Securities Exchange Act of 1934.

Responsibilities of the SEC:

Overseeing the Market: The SEC oversees more than $30 trillion in the U.S. securities market. This makes it a very powerful agency.
Enforcement Actions: The SEC takes action against individuals and companies that break securities laws. These actions can lead to fines and penalties.
Promoting Transparency: The SEC makes sure that investors get accurate and timely information. This helps investors make good decisions.

History of the SEC:

The SEC was created to restore confidence in the markets after the Great Depression. Its goal was to stop the abuses that led to the 1929 crash on Wall Street.

Fact 2: Securities Regulation is Always Changing

Securities regulation changes to keep up with new technology and market trends. For example, regulators made new rules for cryptocurrency and online trading. These changes aim to protect investors better.

Reasons for Changes:

New Technology: New things like cryptocurrency need new rules to protect investors.
Market Trends: Financial products and trading methods keep changing. Regulations need to cover these new things to protect investors.
Past Crises: Financial crises show weaknesses in the rules. Reforms help fix these gaps and make markets stronger.

Impact on Investors and Companies:

Investors: New rules give better protection and more accurate information, helping investors make good decisions and avoid fraud.
Companies: Public companies must follow new rules, which can be hard and costly, but these rules build investor trust.

Fact 3: Not All Securities Are Regulated the Same

Different types of securities have different rules. Common types are stocks, bonds, and mutual funds. Each type has specific rules to protect investors.

Types of Securities and Their Regulations:

Stocks: Public companies must register with the SEC and give annual reports, proxy statements, and other information.
Bonds: Issuers must tell investors about their financial condition and risks.
Mutual Funds: These funds must follow strict rules about transparency and fees.

Public and Private Offerings:

Public Offerings: Companies must follow strict rules and register when they offer securities to the public.
Private Offerings: These are less regulated but still must follow certain federal and state laws.

Blue Sky Laws:

Blue Sky Laws are state security laws that protect investors from fraud. These laws mandate that companies register securities offerings in the states where they sell them.

Importance of Understanding Regulations:

Investors need to know the rules for each type of security to make good decisions and avoid scams.

Fact 4: Regulation Sometimes Falls Short

Even with strict rules, securities fraud still happens. Significant cases like Bernie Madoff’s Ponzi scheme show that fraud can still occur. Detecting and preventing fraud is hard because financial markets are complex.

Challenges in Preventing Fraud:

Sophisticated Schemes: Fraudsters use complex methods that are hard to detect.
Limited Resources: Agencies like the SEC may not have enough money and staff to monitor everything.

Efforts to Improve Regulation:

More Funding and Staff: People are calling for more money and staff for the SEC to improve monitoring and enforcement.
New Technologies: Using new technologies can help detect fraud better.
Harsher Penalties: Tougher penalties for breaking the rules can deter fraud.

Fact 5: Compliance is Crucial

Following securities regulations is crucial for both companies and investors. Companies must follow the rules to avoid penalties and keep investor trust. Investors need to know these rules to protect their investments and make informed choices.

Importance of Compliance for Companies:

Avoiding Fines: Not following the rules can lead to big fines and legal actions.
Maintaining Reputation: Following the rules helps keep a good reputation in the market.
Ensuring Transparency: Following disclosure requirements ensures investors get accurate information.

Potential Consequences of Non-Compliance:

Fines and Penalties: Companies can face big fines for not following the rules.
Reputation Damage: Legal actions can damage a company’s reputation.
Legal Actions: Executives may face legal actions and even jail time for serious violations.

Importance for Investors:

Avoiding Fraud: Knowing the rules helps investors avoid scams.
Access to Information: Investors get accurate information to make good decisions.
Making Informed Choices: Understanding the rules helps protect investments.

Key Questions Answered

What is the purpose of US securities regulation?

US securities regulation enforces laws like the Securities Act of 1933 and the Securities Exchange Act of 1934. This helps investors, ensures fair markets, and assists companies in raising funds.

What government agencies enforce securities regulations?

The Securities and Exchange Commission (SEC) is the main agency. The Financial Industry Regulatory Authority (FINRA) also helps.

How does US securities regulation protect investors?

US securities regulation ensures transparency and honesty in financial reporting and trading. It requires companies to disclose important information and punishes fraud.

What are the most common types of securities regulated in the US?

The most common types are stocks, bonds, mutual funds, public offerings, and private offerings.

What are the penalties for violating US securities regulations?

Penalties can include fines, jail time, and a ban from serving as an officer or director of a public company.

How has US securities regulation evolved over time?

It has changed to keep up with new technologies and market trends. Key reforms include the Sarbanes-Oxley Act of 2002, which improved corporate governance and financial disclosures.

What role do financial advisors play in complying with securities regulations?

Financial advisors help clients understand and follow the rules to protect their investments.

How do US securities regulations differ from those in other countries?

US regulations are often stricter, with a focus on transparency and protecting investors.

How does insider trading fall under US securities regulation?

Insider trading involves trading based on non-public information and is illegal under US regulations.

What is the SEC and what is its role in securities regulation?

The SEC enforces securities laws, regulates markets, and protects investors.

How do securities regulations impact the stock market?

They ensure fair trading, transparency, and protect against fraud, maintaining investor trust.

What are the reporting requirements for companies under US securities regulation?

Companies must provide regular financial reports, including annual reports and proxy statements, to the SEC.

How do securities regulations protect against fraud and scams?

They require transparency, honest reporting, and punish fraud.

What is the role of audits in ensuring compliance with securities regulations?

Audits check the accuracy of financial statements and ensure companies follow the rules.

How can individuals and companies stay updated on changes in US securities regulation?

They can follow updates from the SEC and FINRA, attend training sessions, and consult with legal experts.

US securities regulation protects investors and keeps markets fair. But challenges remain as markets and technologies evolve.

Following these rules is crucial for both companies and investors. Staying informed about new regulations helps protect investments and maintain market trust. By understanding and following securities regulations, we can have a safer and more transparent financial market.