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.

The Merits to Expunge a Disclosure on Your CRD

In today’s digital age, transparency in the financial industry is crucial. Investors have unprecedented access to detailed information about brokers through platforms like FINRA’s BrokerCheck. This level of transparency helps maintain trust between investors and financial professionals. However, it can also harm brokers who face unfounded allegations. At Bakhtiari & Harrison, we understand the importance of maintaining a clean record in the Central Registration Depository (CRD) system. We advocate for brokers to seek expungement through the FINRA arbitration process. This helps protect their professional reputation and career.

Understanding the Expungement Process

Expungement is the process of removing customer dispute information from a broker’s CRD record. This information includes customer complaints, arbitrations, and civil litigations. FINRA Rules 12805 and 13805 specify the narrow circumstances under which expungement is appropriate:

The claim, allegation, or information is factually impossible or clearly erroneous.
The associated person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds.
The claim, allegation, or information is false.

To achieve expungement, an independent arbitrator or a panel of arbitrators must determine that one of these grounds is met.

The Role of BrokerCheck

FINRA’s BrokerCheck is a free tool that provides the public with access to registration information, including customer dispute information. FINRA encourages investors to use BrokerCheck to make informed decisions about financial professionals. However, this transparency can cause situations where people judge brokers based on unverified allegations. This makes the expungement process crucial for those wrongly accused.

New Enhancements to the Expungement Process

Effective October 16, 2023, FINRA implemented significant enhancements to the expungement process to ensure its integrity and fairness. Key changes include:

Special Arbitrator Roster: A panel of three specially trained public arbitrators must decide straight-in requests for expungement.
Unanimous Decision Requirement: All arbitrators must unanimously agree to grant expungement based on the specific rules.
Customer Participation: Customers can take part in the entire expungement hearing, either in person or by video conference.
State Securities Regulators Involvement: State securities regulators are informed of expungement requests and can attend and participate in the hearings.

Statutes of Eligibility

The revised rules impose strict time limits for seeking expungement:

Expungement requests must be filed within two years after the customer arbitration or civil litigation related to the dispute ends.
If the customer complaint does not turn into arbitration or litigation, the request must be filed within three years from when the complaint was first reported in CRD.

Filing an Expungement Request

Under Rule 13805, an associated person may request expungement by filing a statement of claim against the member firm at which they were associated when the customer dispute arose. The request must include:

The applicable filing fee.
The CRD number of the party requesting expungement.
Each CRD occurrence number that is the subject of the request.
The case name and docket number associated with the customer dispute information, if applicable.
An explanation of whether expungement of the same customer dispute information was previously requested and how it was decided.

Expungement Hearing

A three-person panel, selected pursuant to Rule 13806, must hold an expungement hearing to consider and decide the expungement request. At the end of the hearing, the panel must issue an award in accordance with Rule 13805(c)(9). If the associated person withdraws or does not pursue the request, the panel shall deny it with prejudice.

Notifications

To Customers: The associated person must serve all relevant customers with a copy of the statement of claim within ten days of filing it with the Director. The Director must notify customers of the time, date, and place of any prehearing conferences and the expungement hearing.

To State Securities Regulators: The Director must notify state securities regulators of an expungement request within 15 days of receiving it. Regulators have access to all relevant documents and may attend and participate in the hearing.

Customer and State Securities Regulators’ Participation

Customers and state securities regulators are entitled to attend and participate in all aspects of the prehearing conferences and the expungement hearing. They may provide their positions in writing, introduce evidence, cross-examine witnesses, and present opening and closing arguments.

Panel Decisions and Awards

The panel must issue a unanimous decision to award expungement. The decision must be based on one of the following grounds:

The claim, allegation, or information is factually impossible or clearly erroneous.
The associated person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds.
The claim, allegation, or information is false.

The panel must provide a written explanation of the reasons for its finding and identify any specific evidence relied upon. The panel shall not give evidentiary weight to a decision by a customer or state securities regulators not to attend or participate in the hearing.

Court Confirmation

After an arbitration award is issued, it must be confirmed by a court of competent jurisdiction before FINRA will expunge the information from the CRD. This step ensures that the expungement complies with legal standards and provides an additional layer of oversight.

Why Seek Expungement?

Expungement of customer dispute information is essential for several reasons:

Protecting Reputation: Allegations of wrongdoing, even if unsubstantiated, can severely damage a broker’s professional reputation.
Career Advancement: A clean CRD record is crucial for career mobility and opportunities within the securities industry.
Investor Trust: Maintaining a pristine record helps build and retain the trust of current and potential clients.

Detailed Steps in the Expungement Process

Initiating the Expungement Request

The first step in seeking expungement is for the associated person to file a statement of claim against the member firm where they were employed at the time of the customer dispute. This request must adhere to the specific requirements outlined in FINRA Rule 13805. The statement of claim must include all relevant details, such as the CRD numbers and occurrence numbers associated with the request, the case name and docket number, and a comprehensive explanation of any prior expungement requests related to the same information.

Panel Selection and Hearing Process</h3 >

Once the request is filed, a three-person panel is selected from a roster of specially trained arbitrators. This panel is responsible for conducting a thorough expungement hearing. The hearing process involves presenting evidence, examining witnesses, and evaluating the merits of the expungement request based on the grounds specified by FINRA rules.

Customer and Regulator Notifications

Throughout the process, customers involved in the original disputes must be notified and given the opportunity to participate. Similarly, state securities regulators are informed and can also participate in the hearings. This ensures a transparent process where all interested parties have a chance to present their views and evidence.

Conducting the Hearing

The expungement hearing is a formal process where the panel reviews all evidence and hears testimony from both the associated person and any participating customers or state securities regulators. The panel must ensure that all procedural requirements are met, including recording the hearing sessions and allowing full participation from all parties.

Issuing the Award

At the end of the hearing, the panel must issue a written award that details their findings. This award must include a unanimous decision that clearly states the grounds for expungement. The panel must provide a detailed explanation of their reasoning and the evidence that supports their decision. This award is then subject to confirmation by a court of competent jurisdiction.

Challenges and Considerations

Complexity of the Process

The expungement process is complex and requires meticulous attention to detail. Associated persons must ensure that all procedural requirements are met and that their case is presented effectively. This often involves gathering substantial evidence, preparing detailed arguments, and navigating the various stages of the arbitration process.

Importance of Legal Representation

Given the complexity and high stakes involved, it is highly advisable for brokers seeking expungement to engage experienced legal representation. Skilled attorneys can help navigate the process, prepare the necessary documentation, and present a compelling case for expungement. At Bakhtiari & Harrison, we specialize in guiding brokers through this intricate process and advocating on their behalf.

Broader Implications for the Industry

Maintaining Trust and Integrity

The expungement process plays a crucial role in maintaining the integrity of the financial industry. By ensuring that only accurate and verified information remains on a broker’s record, the process helps protect both the reputations of financial professionals and the trust of investors. This balance is essential for the overall health and stability of the industry.

Ongoing Reforms and Improvements

FINRA’s recent enhancements to the expungement process reflect a commitment to ongoing reforms and improvements. These changes aim to make the process more transparent, fair, and rigorous. By continuously refining the rules and procedures, FINRA seeks to uphold the highest standards of accountability and professionalism in the financial sector.

The ability to expunge unfounded customer dispute information from a broker’s CRD record is a vital safeguard for protecting professional reputations and ensuring fairness. The expungement process, governed by stringent FINRA rules, provides a structured pathway for brokers to clear their names of baseless allegations. At Bakhtiari & Harrison, we are dedicated to helping brokers navigate this process and achieve the best possible outcomes.

For more information and personalized assistance, please visit Bakhtiari & Harrison or call us at (310) 499-4732.