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.

Trapped in a Bad Private Placement? How a Securities Fraud Attorney Can Help You Escape

Maybe it seemed like a rare chance, an enticing opportunity to invest in something promising before it hit the open market. Your stockbroker or financial advisor likely pitched it with great enthusiasm, emphasizing the possibility of substantial returns and making you feel like you were being invited into an elite group. It was described as a “private placement”—an investment option unavailable to the general public. Trusting their guidance, you were persuaded by their portrayal of the potential benefits and decided to commit a large portion of your hard-earned money based on these investment decisions.

Now, the reality looks starkly different. Maybe communication about the investment has dried up. Perhaps the promised returns never materialized, and you suspect the value has plummeted. Worse yet, you might have discovered you can’t even sell your investment – your money is effectively trapped, locked away in an asset you can’t liquidate. This one seemed promising among the plethora of types of investments and investment products available, yet it now feels like a misstep. You feel stuck, confused, perhaps misled, and certainly anxious about the substantial losses you’re facing in this “exclusive” deal.

If this scenario hits close to home, you are not alone. Many investors find themselves ensnared in unsuitable private placements, often unaware of the immense risks and complexities involved until financial losses become a harsh reality. The good news is that these losses may not simply be bad luck; they could be the result of negligence or misconduct by the broker or firm that recommended the investment. Understanding your rights and options is critical, and this often begins with consulting an experienced securities fraud attorney.

At Bakhtiari & Harrison, we frequently represent investors who have suffered devastating losses in private placements due to broker misconduct. Our experienced securities lawyer team understands the unique characteristics of these investments, the ways they can go wrong, and the duties your financial professional owes you. We’re here to help you understand what happened and explore potential avenues for recovering your losses. Seeking guidance from a knowledgeable securities fraud attorney is the first step towards potentially reclaiming your financial future.

Unpacking the Mystery: What Exactly is a Private Placement?

Before diving into the risks, let’s clarify what a private placement is. Unlike stocks or bonds that trade freely on public exchanges like the NYSE or NASDAQ, private placements are securities sold directly to a limited number of investors without a public offering. Companies use them to raise capital without the extensive regulatory filings, disclosure requirements, and costs associated with going public.

Most private placements are conducted under rules set forth by the Securities and Exchange Commission (SEC), particularly Regulation D (or “Reg D”). Reg D provides exemptions from the standard registration requirements, allowing companies to offer an investment opportunity to raise funds more quickly and discreetly. While this efficiency benefits the issuing company, it often comes at the expense of investor protection.

Typically, private placements are supposed to be sold primarily to “accredited investors” – individuals who meet certain income or net worth thresholds or possess specific financial credentials. The rationale is that accredited investors are deemed sophisticated enough to understand and bear the higher risks associated with these less-regulated investments and require less disclosure. However, merely being accredited does not automatically make a private placement a suitable investment for you, a fact sometimes overlooked by brokers chasing high commissions. A thorough securities fraud attorney will examine this critical point.

The Hidden Minefield: Why Private Placements Are So Risky

While potentially offering higher returns (to compensate for the higher risk), private placements carry significant dangers, including a lack of transparency, that are often downplayed or inadequately disclosed by the brokers selling them. Understanding these risks is crucial to recognizing if you were inappropriately steered into one: often, the brokers may fail to adhere to industry standards regarding full disclosure and suitability assessments.

Lack of Disclosure and Transparency: This is a major red flag. Companies issuing private placements are not subject to public companies’ rigorous ongoing reporting requirements (like quarterly and annual reports filed with the SEC). Information is often scarce, making it incredibly difficult to track the company’s performance, financial health, or how your investment is truly doing. The initial disclosure document, called a Private Placement Memorandum (PPM) or Offering Memorandum, can be dense, complex, and may obscure more risks than it clarifies. An experienced securities fraud attorney knows how to dissect these documents for potential misrepresentations or omissions.
Extreme Illiquidity: This is perhaps the most painful reality for many investors. There is generally no public market for private placement shares. You can’t simply call your broker and sell them like you would a stock. Your money is typically locked up for years – often 5, 7, 10 years, or even indefinitely. Redemption rights (if any) may be severely restricted or non-existent. If you need access to your capital unexpectedly, you’re usually out of luck. Brokers who fail to adequately disclose or consider this illiquidity, especially for investors needing access to funds (like retirees), breach their duties. This illiquidity is a frequent focus for a securities fraud attorney building a case.
High Risk of Business Failure: Many private placements fund speculative ventures, startups, or businesses in niche or volatile sectors, such as early-stage tech, oil and gas exploration, or specific real estate developments. These ventures are categorized as “risky investments” because they inherently carry a much higher risk of failure than established, publicly traded companies. The potential for losing your entire investment is substantial.
Valuation Problems: How much is your private placement investment worth today? It’s often incredibly difficult to say. Private placements lack this transparent valuation mechanism, unlike publicly traded stocks with constantly updated market prices. The value shown on your account statement might be the initial purchase price, a stale figure provided by the issuer, or an internal estimate by the brokerage firm with little basis in reality. This lack of accurate valuation can mask the true extent of losses for years. A securities fraud attorney understands how misleading valuations can harm investors.
Complexity: These investments are often structured in complex ways involving intricate debt arrangements, preferred returns, warrants, or multiple layers of fees that can be challenging for even sophisticated investors to understand fully. This complexity can obscure underlying risks or conflicts of interest, making it difficult to assess whether the investment aligns with your overall investment goals.

These inherent risks make private placements unsuitable for a large swath of the investing public, even those who technically qualify as accredited.

The Elephant in the Room: Why Brokers Push Private Placements (Hint: Big Fees)

If private placements are so risky and illiquid, why would your trusted advisor recommend them? One significant factor is the potential for exorbitantly high commissions and fees.

While commissions on typical stock trades might be minimal, brokers can earn commissions of 7%, 10%, or sometimes even more of the total amount invested when selling private placements. Additionally, there can be ongoing “management” or “servicing” fees paid to the broker-dealer, further incentivizing the sale. This financial motivation can lead to conflicts of interest where the advisor’s recommendations may not be aligned with your best interests. Consulting a **securities attorney** can help determine whether these commissions and fees might have influenced your advisor’s advice, and if so, what legal actions you may be able to take.

This compensation structure creates a powerful conflict of interest. Is the broker recommending the private placement because it genuinely aligns with your financial goals, risk tolerance, and liquidity needs? Or are they motivated by the substantial payday it represents for them and their firm? Unfortunately, in many cases investigated by a securities fraud attorney, the latter appears to be the driving force behind unsuitable recommendations. This conflict underscores why regulators require brokers to act in their clients’ best interests (Reg BI) or uphold a fiduciary duty.

The Gatekeepers’ Duty: Firm Due Diligence and Investor Suitability

Before a broker can even offer a private placement to clients, the brokerage firm employing them has critical responsibilities. Ignoring these duties can make the firm liable for your losses.

Reasonable Due Diligence: Brokerage firms are required to conduct thorough and independent due diligence on any private placement they intend to sell. This isn’t optional. They must investigate the issuing company, its management, its business plan, the financials, the key risks involved, and the terms of the offering itself. They need to have a reasonable basis for believing the investment is legitimate and that the information provided in the offering documents is credible. A failure to perform adequate due diligence is negligence, and a securities fraud attorney will scrutinize the firm’s efforts (or lack thereof). Firms cannot simply rely on the issuer’s claims; they must verify.
Individual Suitability Analysis (and Regulation Best Interest): Even if a firm conducts proper due diligence on the product, it doesn’t guarantee it’s appropriate for every client. The broker and firm must undertake an additional analysis to determine if the specific private placement suits your needs as an individual investor. Seeking advice from a **securities attorney** can provide clarity on whether the investment matched your financial situation and goals. This suitability analysis involves considering your:
Regulation Best Interest (Reg BI) further requires brokers to act in your “best interest” when recommending any securities transaction, which includes mitigating conflicts of interest like those created by high commissions. Recommending a high-risk, illiquid private placement to an elderly retiree needing income and safety, or overconcentrating a client’s portfolio in such assets, is almost always unsuitable and a breach of regulatory duties. Proving unsuitability is a cornerstone of many cases handled by a securities fraud attorney.
- Investment objectives (e.g., growth, income, capital preservation)
- Risk tolerance (conservative, moderate, aggressive)
- Financial situation and needs (income, net worth, tax status)
- Liquidity needs (how soon might you need access to the funds?)
- Investment experience and sophistication
- Portfolio diversification

If the firm failed in its due diligence, or if the broker recommended an investment that was clearly unsuitable for your specific circumstances (regardless of the product’s general merits), you may have a strong claim for recovering your losses through FINRA arbitration.

Your Guide Through the Complexity: Bakhtiari & Harrison

Feeling lost in the jargon of PPMs, Reg D, due diligence, federal securities laws, and suitability? That’s where we come in. Bakhtiari & Harrison is your dedicated guide through the complex world of investment loss recovery, particularly losses stemming from unsuitable private placements. We are securities fraud attorneys who focus specifically on representing investors like you.

We Focus On Private Placements: We understand the unique legal and factual issues that cases involving complex financial instruments, such as a promissory note, can present. Our approach involves a thorough investigation into inadequate due diligence, an in-depth analysis of suitability failures in relation to your investment goals, and the ability to expose any misrepresentations hidden within the offering documents.
We Empathize with Your Situation: We understand the frustration of seeing your hard-earned money tied up in a failing investment within your portfolio. The sense of betrayal is palpable when you realize that your financial advisor might have prioritized their commission over your financial well-being. As your dedicated investment loss attorney, we offer compassionate counsel and aggressive advocacy to address your concerns and protect your interests.
We Have the Necessary Experience: As experienced securities fraud attorneys, we navigate the FINRA arbitration process effectively, particularly when it involves alternative investments like private placements. We understand how brokerage firms defend these cases, and we concentrate on building a compelling argument for recovery on your behalf.

Investors deserve honest advice and suitable recommendations from their financial advisor, rather than being subjected to undue risk in complex products that are often sold for high fees. Our mission as securities fraud attorneys is to hold negligent firms and financial advisors accountable, fighting for the financial recovery our clients deserve.

Our Plan: A Clear Path to Seek Recovery from Private Placement Losses

Taking on a brokerage firm can feel overwhelming, but we provide a clear, structured plan to pursue your claim:

Step 1: Free, Confidential Consultation Focused on Your Private Placement. Contact us at bhseclaw.com or call our office to speak directly with a securities fraud attorney who is ready to hear your story. As a victim of securities fraud, it’s essential to share your experience with the specific private placement(s) involved. We’ll discuss the recommendation process, the information you were given (or not given), and the investment losses you’ve suffered. This initial consultation is free, confidential, and carries no obligation.

Step 2: In-Depth Case Evaluation & Document Review. If our initial discussion suggests a potential claim, we’ll proceed with a detailed evaluation of your investment portfolio. This involves gathering and meticulously reviewing crucial documents: the Private Placement Memorandum (PPM), subscription agreements, account statements showing the investment, communications with your investment advisor, and your account opening documents detailing your risk tolerance and objectives. A skilled securities fraud attorney on our team will analyze these for evidence of failed due diligence, unsuitability, or misrepresentations/omissions.

Step 3: Developing Strategy & Filing Your FINRA Claim. Based on our comprehensive investigation, we will discuss our findings and propose a tailored legal strategy. For most private placement disputes involving brokers, this involves preparing and filing a detailed Statement of Claim with FINRA Dispute Resolution Services, formally initiating the arbitration process against the responsible brokerage firm and potentially the individual broker. Your securities fraud attorney handles all the complex drafting and filing.

Step 4: Pursuing Your Claim Through Arbitration. We will guide you through every stage of the FINRA securities arbitration process, including filing an arbitration claim for your case. This involves managing the discovery process (obtaining internal documents and information from the brokerage firm), representing you in mediation (if appropriate), and vigorously advocating for you at the final arbitration hearing before a panel of arbitrators. Your investment fraud attorneys will present evidence of misconduct and argue for the recovery of your damages.

Step 5: Seeking Maximum Financial Recovery. Our objective is unwavering: to recover the maximum possible amount of your losses caused by the unsuitable private placement recommendation or the negligence of the financial institutions involved. For the vast majority of cases, this recovery may come via a negotiated settlement or an arbitration award. We typically handle these cases on a contingency fee basis – meaning we don’t get paid unless you recover funds. When you need a securities fraud attorney, know that our interests are aligned with yours.

The High Stakes: Why Delaying Action Can Be Devastating

Ignoring losses from a private placement or waiting too long to seek help can permanently damage your financial future:

Strict Time Limits (FINRA Eligibility/Statutes of Limitation): FINRA generally requires claims to be filed within six years of the event giving rise to the dispute (usually the date of the investment recommendation). State statutes of limitation may be even shorter. Delay could extinguish your right to claim recovery forever. Consulting a securities fraud attorney promptly is vital.
Permanent Loss of Capital: The longer you wait, the greater the potential risks become, as the prospects of recovering your initial investment in the underlying venture (if it’s failing) may continue to diminish, making it increasingly difficult to trace accountability. Additionally, your investment advisor’s involvement in recommending the private placement can further complicate recovery efforts. Taking no action guarantees the loss.
Funds Remain Trapped: Without taking action, your investment strategies could remain illiquid and potentially worthless. Recovery through arbitration might be the only way to reclaim any lost funds.
No Accountability: Negligent firms and brokers who pushed unsuitable products avoid consequences, potentially harming others.
Ongoing Financial and Emotional Strain: Living with significant, unresolved losses and the feeling of being trapped takes a heavy toll.

Don’t let time run out. The risks of inaction are too great when dealing with potentially unsuitable private placements. Every consultation with a securities fraud attorney brings you closer to understanding your options.

Envisioning Success: Recovery, Accountability, and Freedom

Imagine getting out from under the weight of that bad investment. Imagine holding the firm that failed in its duties accountable. Success in a private placement case, pursued with the help of a dedicated securities fraud attorney, can mean:

Financial Recovery: Receiving compensation for the investment losses sustained in the unsuitable investment, helping you rebuild your portfolio and secure your future.
Accountability: Forcing the brokerage firm and/or broker to answer for their negligence, due diligence failures, or unsuitable recommendations.
Freedom from the Trap: Escaping the illiquidity and uncertainty of the bad investment and gaining financial relief.
Closure and Peace of Mind: Achieving a resolution can provide significant emotional closure, allowing you to move past the stressful experience.

While outcomes are never guaranteed, the proficiency of a seasoned securities fraud attorney significantly improves your chances of achieving a favorable result. We fight to make these successful outcomes a reality for investors harmed by private placement misconduct. Finding the right securities fraud attorney is key.

Take Control: Contact a Bakhtiari & Harrison Securities Fraud Attorney Today

You were drawn into a private placement with promises, but may have been left with losses and locked-up capital. This situation challenges your broader **investment strategies** and financial confidence. You don’t have to accept this passively. You have the right to demand accountability and seek recovery if misconduct occurs.

The first step is often the hardest, but it’s essential. Don’t let the complexity of private placements deter you from exploring your legal options.

If you lost money in a private placement recommended by your broker or financial advisor, contact Bakhtiari & Harrison today for a free, confidential consultation with an experienced securities fraud attorney / investment fraud lawyer.

In your free consultation, a securities fraud attorney with experience in private placement cases within the securities industry will listen to your specific situation, explain your rights, and provide an honest assessment of whether you may have a viable claim. There is absolutely no cost or obligation.

Let Bakhtiari & Harrison be your guide and advocate. As a premier law firm, we understand private placements, the intricacies of broker misconduct, the rules brokers and firms must follow, and how to fight for investors who have been wronged. Contact us today and let a qualified securities fraud attorney help you seek the justice and recovery you deserve. Your trusted securities fraud attorney is ready to help.