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.

Private REITs: A Focus on BREIT

Real Estate Investment Trusts (REITs) offer a way for investors to gain exposure to real estate without the need to directly own, manage, or finance properties. While many are familiar with publicly traded REITs, private REITs like the Blackstone Real Estate Income Trust (BREIT) also play a significant role in the real estate market.

What is a Private REIT?

A Private REIT, such as BREIT, is a real estate investment trust that is not listed on public stock exchanges. These REITs are typically available only to accredited investors and institutional investors, making them less accessible to the general public. The primary goal of private REITs is to pool investors’ capital to invest in a diversified portfolio of income-producing real estate assets.

Structure of a Private REIT

Formation

Entity Formation: Private REITs like BREIT are usually structured as corporations, trusts, or associations that own, operate, or finance real estate properties. They must comply with specific Internal Revenue Service (IRS) regulations to qualify as a REIT.
Tax Treatment: To qualify as a REIT, the entity must distribute at least 90% of its taxable income to shareholders as dividends. In return, REITs generally do not pay corporate income taxes on the distributed income.

Management

Internal Management: Some private REITs are internally managed, meaning they have their own dedicated management teams to oversee operations, acquisitions, and asset management.
External Management: BREIT, for example, is externally managed by Blackstone, a leading global investment firm. This external management handles the day-to-day operations, including property management, leasing, and maintenance.

Revenue Generation in Private REITs

Private REITs like BREIT generate revenue primarily through:

Rental Income: The bulk of BREIT’s revenue comes from leasing space in its real estate holdings. This includes residential properties, commercial buildings, industrial spaces, and other real estate assets.
Property Sales: BREIT may also generate income by buying properties at lower prices, improving them, and selling them at a profit.
Financing and Lending: Some REITs, including BREIT, focus on providing financing for real estate projects and earn interest income from these loans.
Development Projects: Private REITs like BREIT might engage in property development, creating new real estate projects from the ground up and selling or leasing them upon completion.

Role of Sponsors

Sponsors are crucial to the formation and success of private REITs like BREIT. Here’s how they contribute:

Capital Raising: Sponsors are responsible for raising the initial capital required to launch the REIT. Blackstone, the sponsor of BREIT, attracts investors by showcasing the potential returns and benefits of the REIT’s investment strategy.
Asset Acquisition: Sponsors identify and acquire properties for the REIT’s portfolio. Blackstone’s expertise and industry connections help secure high-quality assets at favorable terms.
Management Oversight: In externally managed REITs like BREIT, sponsors handle the day-to-day operations and strategic planning. They ensure the properties are well-maintained and generate steady income.
Alignment of Interests: Sponsors often invest their own money in the REIT, aligning their interests with those of the investors. This can enhance trust and confidence among investors.

Advantages and Disadvantages of Private REITs

Advantages

Diversification: Private REITs like BREIT offer investors the opportunity to diversify their portfolios with real estate assets without the need to directly purchase or manage properties.
Potential for High Returns: With skilled management and strategic property acquisitions, private REITs can generate significant returns for investors.
Tax Efficiency: The requirement to distribute 90% of taxable income as dividends allows investors to benefit from a steady income stream while the REIT avoids corporate income taxes.

Disadvantages

Liquidity: Unlike publicly traded REITs, private REITs like BREIT are not traded on stock exchanges, making them less liquid. Investors may find it difficult to sell their shares quickly.
Accessibility: Private REITs are typically limited to accredited investors, restricting access for the general public.
Transparency: Private REITs may offer less transparency compared to publicly traded REITs, as they are not subject to the same regulatory reporting requirements.

Private REITs like BREIT provide a valuable investment vehicle for those looking to diversify their portfolios with real estate assets. Understanding their structure, how they generate revenue, and the role of sponsors can help investors make informed decisions. While private REITs offer significant potential benefits, they also come with challenges such as limited liquidity and accessibility. As with any investment, it’s crucial to conduct thorough research and consider seeking advice from financial professionals before investing in a private REIT. By gaining a deeper understanding of private REITs like BREIT, investors can better navigate the real estate market and take advantage of the opportunities these investment vehicles offer.