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.

Misrepresentation – How False Information Leads to Investor Losses

Misrepresentation is one of the most common—and damaging—forms of investment fraud. When a financial advisor provides false, misleading, or incomplete information about an investment, the investor cannot make an informed decision. This deception often leads to significant financial losses, unexpected risks, and irreversible harm to long-term financial plans. Misrepresentation may be intentional or negligent, but in either case, it violates industry standards and the rules of the Financial Industry Regulatory Authority, known as FINRA.

Understanding what misrepresentation looks like, why brokers engage in it, and how an investment fraud lawyer can help you recover losses is essential for protecting your financial future.

What Is Misrepresentation in Securities?

Misrepresentation occurs when a broker or advisor provides incorrect or incomplete information about an investment. This can include:

False statements about risk, performance, or guarantees
Omissions of critical facts investors need to understand the investment
Exaggerations about potential returns
Understatement of fees, penalties, or liquidity restrictions
Misleading descriptions of how the investment works

Misrepresentation violates the broker’s duty to act honestly and transparently. FINRA rules require advisors to provide fair, balanced, and accurate information about any investment they recommend.

Types of Misrepresentation

Misrepresentation can take several forms, each harmful in different ways:

1. Misrepresentation of Risk
One of the most common forms involves downplaying or hiding the true risks of an investment. Examples include describing a high-risk private placement as “safe” or suggesting a volatile stock is “stable and predictable.” Investors cannot evaluate suitability unless they understand risk accurately.

2. Misrepresentation of Returns
Brokers sometimes promise unrealistic or guaranteed returns to persuade investors to buy. Statements like “you’ll make at least 10% every year” are not only misleading but violate FINRA rules.

3. Misrepresentation of Liquidity
Some investments—such as non-traded REITs, private placements, or certain annuities—are illiquid, meaning investors cannot easily sell them. When brokers fail to disclose this, investors may be trapped in unsuitable or declining investments.

4. Misrepresentation of Fees or Costs
Hidden fees can significantly erode returns. Brokers may omit or obscure high commissions, surrender charges, management fees, or ongoing costs. This creates the illusion of a better investment than what actually exists.

5. Misrepresentation of a Broker’s Credentials or Role
Some brokers exaggerate their expertise, certifications, or fiduciary responsibilities. Misrepresenting qualifications creates false trust, encouraging investors to follow unsuitable recommendations.

6. Misrepresentation by Omission
Failing to disclose material information can be just as harmful as providing false information. If a broker leaves out key facts—such as conflicts of interest, disciplinary history, or known problems with an investment—investors are misled.

Why Brokers Misrepresent Investments

Though misrepresentation is strictly prohibited, it still happens for various reasons:

1. Commission-Based Incentives
Some products offer brokers high commissions. This can tempt advisors to exaggerate benefits or hide risks to close the sale.

2. Pressure to Meet Firm Sales Goals
Brokerage firms sometimes push advisors to sell certain investments. Pressure to meet targets may encourage misleading sales tactics.

3. Lack of Knowledge
In some cases, misrepresentation stems from negligence rather than fraud. Brokers may recommend products they don’t fully understand.

4. Desire to Keep Clients Invested
When market volatility occurs, advisors may downplay risks or gloss over losses to avoid client dissatisfaction.

Regardless of motive, misrepresentation that leads to investor harm is actionable.

How Misrepresentation Harms Investors

Misrepresentation causes financial and emotional damage, including:

Losses from unsuitable or risky investments
Inability to access funds due to liquidity restrictions
Missed opportunities to make profitable or safer investments
Loss of trust in financial professionals
Financial insecurity, particularly for retirees

These consequences often disrupt long-term financial plans, such as retirement or college funding.

Warning Signs of Misrepresentation

Investors should watch for:

Promises of “guaranteed” or above-market returns
Vague explanations about how investments work
Pressure to invest quickly
Lack of written documentation
Inconsistencies between verbal statements and written materials
Surprise fees or unexpected restrictions
Difficulty accessing account statements or performance reports

These red flags may indicate that the advisor is withholding crucial information.

What to Do If You Suspect Misrepresentation

If you believe you received misleading or false information, take the following steps:

1. Gather Documentation
Collect all account statements, emails, text messages, sales materials, and notes from conversations. These records are crucial in proving misrepresentation.

2. Review the Investment’s Actual Features
Compare what you were told with what the product actually offers. Look at:

Risk level
Fees
Liquidity
Historical performance
Suitability for your financial goals

3. Contact the Brokerage Firm
Speak to the branch manager or compliance department. Firms are required to investigate complaints. Their response—or lack of one—may confirm the misconduct.

4. Check Your Broker’s Background
FINRA’s BrokerCheck database shows prior customer disputes, disciplinary actions, and regulatory events. Multiple complaints may indicate a pattern of misrepresentation.

5. Contact an Investment Fraud Attorney
An attorney can evaluate your case, identify regulatory violations, and determine whether misrepresentation caused your losses.

How an Investment Fraud Lawyer Proves Misrepresentation

Misrepresentation cases require demonstrating that:

The broker provided false or incomplete information
You relied on that information when making investment decisions
You suffered financial losses as a result

An investment fraud lawyer analyzes:

Communications between you and the broker
Product disclosures and offering documents
Your risk profile and investment objectives
The broker’s sales practices
Firm supervision and compliance records

Lawyers also work with financial experts to quantify damages and provide evidence during arbitration.

Legal Remedies for Misrepresentation

Most misrepresentation claims are resolved through FINRA arbitration, which is faster and more efficient than traditional litigation. Investors may recover:

Out-of-pocket losses
Lost opportunity costs
Commissions and fees
Interest
Attorney fees in certain cases
Punitive damages may be awarded if the misconduct was intentional or egregious.

Why Firms Are Also Liable

Brokerage firms have a duty to supervise their advisors. If the firm failed to detect or prevent misrepresentation, it can be held responsible. This increases the likelihood of recovery since firms often have deeper financial resources.

Preventing Misrepresentation in the Future

Investors can protect themselves by:

Asking for detailed written explanations
Reviewing offering documents carefully
Monitoring accounts regularly
Avoiding investments they do not fully understand
Verifying advisor credentials through FINRA BrokerCheck
Requesting full disclosure of fees, risks, and conflicts of interest

Being proactive helps reduce the risk of future harm.

Misrepresentation undermines the trust that investors place in their financial professionals. Whether through false statements, omissions, or exaggerations, misleading information can cause serious financial loss. Fortunately, FINRA rules protect investors and provide powerful tools for recovering damages through arbitration. If you suspect your broker misrepresented an investment, you should act quickly to protect your rights and pursue recovery. To discuss your situation or explore legal options, contact Bakhtiari & Harrison.