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.

5 Key Risks to Know When Purchsing Alternative Investments

Alternative investments, which encompass a wide range of assets such as hedge funds, private equity, real estate, commodities, and more, are becoming increasingly popular among investors seeking diversification and higher returns. However, these investments also come with unique risks and complexities that require careful consideration. In this blog, we will explore the primary concerns investors should be aware of, regulatory guidance from FINRA, the associated risks, and suitability criteria. We will also discuss how Bakhtiari & Harrison stand up for investors to ensure their interests are protected.

Understanding Alternative Investments

Alternative investments differ from traditional assets like stocks and bonds, offering exposure to different asset classes and investment strategies. Here are some common types of alternative investments:

Hedge Funds: Pooled investment funds that employ various strategies to earn active returns for their investors, including leveraging, derivatives, and short selling.
Private Equity: Investment in private companies or buyouts of public companies that result in a delisting of public equity.
Real Estate: Direct investment in physical properties or through Real Estate Investment Trusts (REITs).
Commodities: Physical assets such as gold, oil, and agricultural products.
Venture Capital: Investment in early-stage companies with high growth potential.
Collectibles: Tangible assets like art, wine, antiques, and coins.

While they can provide valuable diversification benefits, these investments also come with higher risks, less liquidity, and greater complexity.

Regulatory Guidance: FINRA Rules and Notices

The Financial Industry Regulatory Authority (FINRA) provides essential guidelines and rules to help protect investors when dealing with alternatives. Key FINRA regulations and notices include:

FINRA Rule 2111 (Suitability): This rule requires firms and associated persons to have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer. This includes considering the customer’s investment profile, which encompasses factors such as age, financial situation, investment experience, and risk tolerance.
FINRA Regulatory Notice 10-22: This notice emphasizes the importance of due diligence by firms when recommending alternative products. Firms must conduct a thorough analysis of the investment’s characteristics, risks, and rewards, ensuring that they understand the product well enough to explain it to customers.
FINRA Regulatory Notice 12-03: This notice provides guidance on complex products, highlighting the need for firms to ensure their representatives are adequately trained and understand the products they recommend. It also underscores the importance of disclosing all relevant risks and features to investors.

Risks Associated with Alternative Products

Investors must be aware of several key risks when considering alternative investments:

Liquidity Risk: Many alternatives are illiquid, meaning they cannot be easily sold or converted to cash without a substantial loss in value. This can be problematic for investors who need to access their funds quickly.
Valuation Risk: Determining the accurate value of alternative investments can be challenging due to their complexity and lack of transparency. This can lead to inaccurate pricing and potential losses.
Market Risk: Alternative investments can be highly sensitive to market conditions, which can lead to significant fluctuations in value.
Regulatory Risk: Changes in regulations or legal frameworks can impact the performance and viability of alternative investments.
Operational Risk: The performance of alternative investments often depends on the expertise and reliability of the managers or entities overseeing them. Poor management or operational failures can result in significant losses.

Suitability of Alternative Investments

Alternative investments are generally suitable for sophisticated investors who have a higher risk tolerance and a longer investment horizon. Investors with substantial financial resources can better absorb potential losses and take advantage of the diversification benefits offered by alternative investments. Entities such as pension funds, endowments, and insurance companies often use alternative investments to achieve their long-term financial goals.

Those with a deep understanding of financial markets and investment strategies are better equipped to evaluate the risks and potential rewards of alternative investments. Given the illiquid nature of many alternative investments, they are more suitable for individuals who can commit their capital for extended periods.

How Bakhtiari & Harrison Can Help

At Bakhtiari & Harrison, our priority is to advocate for and protect investors’ rights in the often-complex landscape of alternative investments.We understand the challenges these investments pose and offer comprehensive support to help investors navigate them effectively.

Detailed Investigations: We conduct thorough investigations into the terms, conditions, and risks of alternative investments to ensure they align with our clients’ financial goals and risk tolerance. This includes scrutinizing fees, liquidity terms, and any potential conflicts of interest.
Litigation and Recovery: When investors experience losses due to misrepresentations, unsuitable recommendations, or other forms of misconduct by financial advisors, we take decisive legal action to seek recovery. Our skilled attorneys are experienced in handling the complexities of alternative investment disputes.
Educational Support: We believe in empowering our clients with the knowledge they need to make informed investment decisions. We provide extensive educational resources and offer personalized consultations to help investors understand the risks and rewards associated with alternative investments.
Ensuring Compliance: We work diligently to ensure that financial advisors and firms adhere to all relevant FINRA rules and regulations. By holding these entities accountable, we help maintain the integrity of the investment process and safeguard our clients’ interests.

Bakhtiari & Harrison is committed to providing rigorous advocacy and support to investors, ensuring that they are treated fairly and their investments are protected. Our goal is to level the playing field between individual investors and the larger financial institutions, providing our clients with the confidence and security they deserve. To learn more about how we can assist you with your alternative investments, visit contact us.

Alternative investments can offer significant benefits, including diversification and the potential for higher returns. However, they also come with unique risks and complexities that must be carefully considered. By understanding the associated costs, risks, and suitability criteria, and by relying on the support of experienced legal professionals like Bakhtiari & Harrison, investors can navigate the challenges of alternative investments and make informed decisions to protect their financial future.