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.

Understanding the Risks of Non-Traded REITs: What Investors Need to Know

Investing in Real Estate Investment Trusts (REITs) can be an attractive option for those looking to diversify their portfolios and gain exposure to real estate markets. However, not all REITs are created equal. Non-traded REITs, in particular, pose unique risks that investors should be aware of. At Bakhtiari & Harrison, we have seen firsthand the challenges and losses faced by investors in these complex products. This blog aims to shed light on the inherent risks of non-traded REITs, using examples from problematic REITs such as Walton and BREIT, and to provide guidance on how to navigate these investments.

What Are Non-Traded REITs?

Non-traded REITs are real estate investment trusts that are not listed on any public exchange. Unlike publicly traded REITs, which offer liquidity and transparency, non-traded REITs are often illiquid, meaning investors cannot easily sell their shares. These REITs are typically sold through brokers and financial advisors, often marketed as stable, income-producing investments suitable for long-term investors.

The Illiquidity Problem

One of the most significant risks associated with non-traded REITs is their illiquidity. Since these REITs are not traded on public exchanges, there is no active market for their shares. Investors may find themselves locked into their investment for years, unable to sell their shares or access their capital. This illiquidity can be particularly problematic during economic downturns or if the investor needs to access funds for emergencies.

High Fees and Commissions

Non-traded REITs often come with high upfront fees and commissions, which can erode the overall return on investment. These fees are typically used to pay brokers and financial advisors for selling the product, rather than being invested in real estate assets. As a result, investors may see a significant portion of their initial investment diminished by these costs.

Valuation and Transparency Issues

Another challenge with non-traded REITs is the lack of transparency in their valuation. Unlike publicly traded REITs, which are subject to market pricing and regulatory oversight, non-traded REITs do not provide daily pricing information. This lack of transparency can make it difficult for investors to determine the true value of their investment and assess its performance over time.

Case Studies: Walton and BREIT

Several non-traded REITs have faced scrutiny and controversy due to their performance and management practices. For example, Walton, a non-traded REIT focused on land investments, has been criticized for its high fees and lack of liquidity, leading to significant losses for many investors.

BREIT (Blackstone Real Estate Income Trust) is another example. While it is managed by a reputable firm, investors have raised concerns about its liquidity and valuation practices. BREIT has implemented redemption limits, restricting investors’ ability to withdraw their funds, which has caused frustration and financial strain for some.

Other Problematic Non-Traded REITs

Beyond Walton and BREIT, other non-traded REITs have also posed risks to investors. Examples include:

Inland American Real Estate Trust: Faced significant devaluation and liquidity issues, resulting in substantial losses for investors.
Behringer Harvard REIT I: Struggled with poor performance and management controversies, leading to reduced investor returns.
Cole Credit Property Trust: Encountered challenges with property valuations and liquidity, impacting investor confidence.

Protecting Your Investments

Given the risks associated with non-traded REITs, it is crucial for investors to conduct thorough due diligence before committing their capital. Here are some steps to consider:

Understand the Fees: Be aware of the high upfront fees and commissions associated with non-traded REITs and how they impact your investment.
Evaluate Liquidity: Consider the illiquidity of non-traded REITs and whether you can afford to lock up your funds for an extended period.
Assess Transparency: Look for REITs that provide clear and transparent information about their valuation and performance.
Seek Professional Advice: Consult with a financial advisor or legal expert to ensure you fully understand the risks and potential rewards of investing in non-traded REITs.

Conclusion

Non-traded REITs can be a risky investment, often fraught with high fees, illiquidity, and transparency issues. At Bakhtiari & Harrison, we are committed to helping investors navigate these complex products and protect their financial interests. If you have suffered losses from investing in non-traded REITs or have concerns about your investments, our experienced team is here to provide the guidance and support you need. Contact us today to learn more about how we can assist you.