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.

Selling Away – The Hidden Threat of Off-Book Investments

Selling away is one of the most deceptive and damaging forms of broker misconduct. It occurs when a financial advisor recommends or sells an investment that is not approved or supervised by their brokerage firm. These off-book offerings often involve high-risk private deals, unregistered securities, or outright scams. Because the firm has not vetted the investment, the investor is left fully exposed to fraud, misrepresentation, and catastrophic losses.

Selling away violates securities laws and the rules of the Financial Industry Regulatory Authority, known as FINRA. When brokers sell investments outside their firm’s oversight, both the broker and the brokerage firm may be held accountable for investor losses.

Understanding how selling away occurs, why it is dangerous, and what an investment fraud lawyer can do to help recover losses is crucial for protecting your financial security.

What Is Selling Away?

Selling away happens when a licensed broker:

Recommends
Offers
Sells
Facilitates
any investment outside the products approved and supervised by their brokerage firm.

Common characteristics of selling away include:

The investment is not listed on the firm’s platform
The firm did not review or approve the investment’s risks
The advisor asks investors to write checks to a third party
The broker uses personal email or phone numbers
The investment is pitched as “exclusive” or “private”
Documentation does not include firm logos or compliance disclosures

Because the firm is not involved, there is no oversight, compliance review, or due diligence—leaving investors vulnerable.

Why Brokers Engage in Selling Away

Selling away is almost always financially motivated. Many off-book investments offer brokers:

Higher commissions than regulated products
Bonuses, ownership stakes, or referral payments
Opportunities to sell investments they personally endorse
Side income unrelated to their brokerage job

Some brokers sell away to friends or long-term clients under the guise of “special access” to unique opportunities. Others are recruited into fraudulent schemes as promoters. Regardless of motive, selling away is a violation of industry rules.

Common Types of Selling Away Schemes

1. Private Placements and Unregistered Securities
These investments often promise high returns but come with limited transparency and high risk.

2. Ponzi and Pyramid Schemes
Fraudsters frequently recruit brokers to bring in new investors.

3. Real Estate Partnerships or Syndications
Some brokers push real estate deals outside the firm, claiming they are “safe” or “asset-backed.”

4. Promissory Notes
Promissory note scams offer fixed returns with minimal risk—claims that are almost always false.

5. Small Business or Startup Investments
Brokers sometimes solicit investments in businesses owned by friends, family members, or themselves.

6. Crypto, FX, and Offshore Investments
Unregulated digital asset and foreign exchange schemes are increasingly used in selling away cases.

Why Selling Away Is So Dangerous

Selling away deprives investors of the most important protections:

Firm due diligence: Approved investments undergo scrutiny.
Compliance oversight: Firms monitor suitability and risk.
Regulatory safeguards: Registered products must meet industry standards.

Off-book investments bypass all of this. They are typically:

High-risk
Illiquid
Unregulated
Poorly documented
Vulnerable to fraud

When losses occur, investors discover that neither the firm nor regulators reviewed the product.

How to Spot Selling Away

Investors should watch for these red flags:

A broker pitches an investment “not available through the firm.”
You are asked to wire money to an entity unrelated to the brokerage firm.
The broker uses personal email or personal bank accounts.
Documents do not include the firm’s name, disclosures, or compliance information.
The broker claims the investment is “exclusive,” “private,” or “invite-only.”
No official prospectus or offering memorandum is provided.
The investment seems outside the broker’s normal product offerings.

If any of these signs appear, request written confirmation that the investment is approved by the firm’s compliance department.

Why Firms Are Responsible for Selling Away

Even though selling away involves off-book investments, brokerage firms are still responsible for supervising their advisors. Under securities laws and FINRA rules, firms must:

Monitor advisor communications
Review outside business activities
Investigate red flags
Enforce written supervisory procedures
Confirm that advisors follow applicable rules

If a firm fails to detect or prevent selling away, it may be liable for investor losses due to failure to supervise.

How an Investment Fraud Lawyer Proves Selling Away

Selling away cases require detailed investigation and strong evidence. An investment fraud lawyer:

Obtains communications showing the broker recommended the off-book investment
Reviews firm policies and supervisory practices
Identifies failures in oversight
Examines bank records and transaction history
Interviews witnesses and gathers testimony
Determines whether the broker concealed the activity from the firm

Lawyers also work with financial experts to assess damages and losses.

Damages Available to Investors in Selling Away Cases

Investors harmed by selling away may recover:

Out-of-pocket losses
Lost interest or returns
Fees and commissions paid
Consequential losses
Attorney fees in certain cases
Punitive damages when misconduct is intentional

FINRA arbitration panels often view selling away as a serious violation that warrants substantial compensation.

How FINRA Arbitration Works for Selling Away Claims

Most investor claims involving selling away are resolved in FINRA arbitration. Arbitrators evaluate:

The nature of the investment
The broker’s conduct
The firm’s supervision
The investor’s risk profile
The extent of losses

Arbitration is generally faster and more cost-effective than court litigation, and awards are legally enforceable.

How Investors Can Protect Themselves

To avoid selling away schemes:

Confirm all investments directly with the brokerage firm
Request written compliance approval
Avoid wiring funds to unfamiliar entities
Be skeptical of “exclusive” or “off-menu” deals
Research offerings independently
Review your broker’s background using FINRA BrokerCheck

If something feels off, seek a second opinion.

What to Do If You Suspect Selling Away

If you believe you invested in an off-book product:

Gather account statements, communications, and documents.
Contact the brokerage firm’s compliance department.
Request a written explanation of the investment’s approval status.
Consult an investment fraud lawyer immediately.

Documentation is critical to proving your case.

Selling away is a serious form of investment fraud that exposes investors to significant and unnecessary risk. When brokers solicit off-book investments, they violate industry rules and betray investor trust. Fortunately, investors harmed by selling away have strong legal protections under FINRA rules and can pursue recovery through arbitration.

If you suspect your advisor recommended an unapproved or off-book investment, prompt action is essential. To explore your legal options or begin a claim, contact Bakhtiari & Harrison.