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.

Ultimate Guide to Securities Law: What You Need to Know

Securities law is a cornerstone for those in the legal and financial industries, as well as small business owners aiming to raise capital. This guide provides a comprehensive overview of key information and updates on securities law for 2024. Whether you are a law student, a financial advisor, or an entrepreneur, understanding securities law is crucial for navigating today’s financial landscape.

What is Securities Law?

Securities law governs the issuance, trading, and regulation of financial instruments such as stocks, bonds, and mutual funds. Its primary goal is to protect investors, ensure transparency, and maintain fair trading practices in the financial markets. Securities law is essential for several reasons:

Investor Protection: Ensures that investors receive accurate information and are shielded from fraudulent activities.
Market Integrity: Promotes fair and efficient markets.
Regulatory Compliance: Helps businesses comply with legal requirements, avoiding penalties and legal issues.

The history of securities law dates back to the early 20th century with the establishment of the Securities Act of 1933 and the Securities Exchange Act of 1934 in response to the stock market crash of 1929. These laws laid the foundation for modern securities regulation, aiming to restore investor confidence and prevent future market abuses.

Types of Securities

Equity Securities

Equity securities represent ownership in a company. Common examples include stocks, which give shareholders a claim on the company’s assets and earnings.

Debt Securities

Debt securities are financial instruments that represent money borrowed by an issuer that must be repaid with interest. Examples include bonds and debentures.

Derivative Securities

Derivatives are financial contracts whose value is derived from the performance of underlying assets, indices, or interest rates. Common derivatives include options and futures.

Hybrid Securities

Hybrid securities combine elements of both equity and debt. Convertible bonds, which can be converted into a predetermined number of shares, are a typical example.

Commodities and Futures

Commodities are raw materials or primary agricultural products that can be bought and sold, such as gold, oil, and wheat. Futures are contracts to buy or sell these commodities at a future date at a predetermined price.

Regulation of Securities

Securities and Exchange Commission (SEC)

The SEC is the primary regulatory body overseeing securities laws in the United States. It enforces regulations to protect investors, maintain fair markets, and facilitate capital formation.

State Securities Laws

State securities laws, also known as Blue Sky Laws, regulate the offering and sale of securities to protect the public from fraud. These laws vary by state and work alongside federal regulations.

Federal Securities Laws

Federal securities laws include the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. These laws regulate securities issuance, trading, and the conduct of market participants.

Securities Act of 1933

This act governs the initial sale of securities, requiring issuers to register and disclose important financial information to potential investors.

Securities Exchange Act of 1934

This act regulates secondary trading of securities, establishing the SEC to oversee securities markets and enforce securities laws.

Key Players

Investors

Investors are individuals or entities that purchase securities to gain returns through dividends, interest, or capital appreciation.

Issuers

Issuers are entities, such as corporations or governments, that issue securities to raise capital for various purposes.

Underwriters

Underwriters are financial intermediaries that assist issuers in the process of offering securities to the public. They help determine the offering price, buy the securities from the issuer, and sell them to investors.

Broker-Dealers

Broker-dealers are individuals or firms that buy and sell securities on behalf of their clients and themselves. They play a critical role in the liquidity and functioning of securities markets.

Investment Advisers

Investment advisers provide advice on securities to clients for a fee. They are regulated under the Investment Advisers Act of 1940 and must register with the SEC or state regulators.

Fundamentals of Securities Law

Registration and Disclosure Requirements

Issuers must register their securities with the SEC and provide detailed information about their business, financial condition, and the risks involved. This ensures transparency and informed decision-making by investors.

Anti-Fraud Provisions

Anti-fraud provisions prohibit deceit, misrepresentations, and other fraudulent practices in the sale and trading of securities. The SEC enforces these provisions to maintain market integrity.

Insider Trading

Insider trading involves buying or selling securities based on material, non-public information. It is illegal and subject to severe penalties to prevent unfair advantages and promote market fairness.

Market Manipulation

Market manipulation involves activities designed to deceive or mislead investors by artificially affecting the price or trading volume of a security. It is prohibited under securities laws to ensure fair and efficient markets.

Civil and Criminal Liability

Violations of securities laws can result in both civil and criminal penalties. Civil penalties may include fines, disgorgement of profits, and injunctions, while criminal penalties can lead to imprisonment.

Enforcement and Litigation

Investigations and Enforcement Actions

The SEC conducts investigations and enforcement actions against individuals and entities suspected of violating securities laws. These actions may result in penalties, fines, and other sanctions.

Civil Lawsuits

Investors and other parties may file civil lawsuits for securities fraud and other violations. Remedies can include monetary damages, rescission of transactions, and other forms of relief.

Criminal Prosecutions

Severe violations of securities laws can lead to criminal prosecutions by the Department of Justice. Convictions can result in imprisonment, fines, and other penalties.

Alternative Dispute Resolution

Alternative dispute resolution methods, such as arbitration and mediation, provide a way to resolve securities disputes outside of court. These methods can be quicker and less costly than litigation.

Securities Arbitration

Securities arbitration involves resolving disputes between investors and brokers or brokerage firms through an arbitration process. It is a common method for addressing grievances and seeking redress for losses.

Key Questions Answered

What are securities?
- Securities are financial instruments that represent ownership (stocks), a debt agreement (bonds), or rights to ownership (options).
What laws govern securities?
- Key laws include the Securities Act of 1933, the Securities Exchange Act of 1934, and other federal and state regulations.
What is the Securities and Exchange Commission (SEC)?
- The SEC is the federal agency responsible for enforcing securities laws, regulating the securities industry, and protecting investors.
What is the role of the SEC in regulating securities?
- The SEC oversees securities markets, enforces securities laws, and ensures transparency and fairness in the trading of securities.
What are the different types of securities?
- Types include equity securities (stocks), debt securities (bonds), derivative securities (options), hybrid securities (convertible bonds), and commodities and futures.
How are securities bought and sold?
- Securities are bought and sold through exchanges (e.g., NYSE, NASDAQ) or over-the-counter markets, facilitated by brokers and dealers.
What is insider trading?
- Insider trading involves buying or selling securities based on material, non-public information, and is illegal.
How does the Securities Act of 1933 regulate securities?
- It requires issuers to register and disclose important financial information to protect investors and ensure transparency.
How does the Securities Exchange Act of 1934 regulate securities?
- It regulates secondary trading of securities, establishes the SEC, and imposes reporting requirements on public companies.
What is the role of the Financial Industry Regulatory Authority (FINRA) in securities regulation?
- FINRA oversees brokerage firms and brokers, ensuring compliance with rules and regulations to protect investors.
What is the difference between public and private securities offerings?
- Public offerings are open to the general public and require registration with the SEC, while private placements are sold to a limited number of accredited investors and are often exempt from registration.
What are the requirements for companies to go public?
- Companies must file a registration statement with the SEC, provide detailed financial disclosures, and comply with ongoing reporting requirements.
What is the purpose of securities registration and disclosure requirements?
- These requirements ensure that investors have access to important information, promoting informed investment decisions and market transparency.
What are the penalties for violating securities laws?
- Penalties can include fines, disgorgement of profits, imprisonment, and bans from serving as officers or directors of public companies.
How do securities laws protect investors?
- Securities laws protect investors by ensuring transparency, preventing fraud, and providing mechanisms for redress in case of violations.

Understanding securities law is essential for anyone involved in the financial markets, whether you are a law student, a financial advisor, or a small business owner. By familiarizing yourself with the key concepts, regulations, and enforcement mechanisms outlined in this guide, you can navigate the complex world of securities with confidence. Stay informed, comply with legal requirements, and continue learning to protect your interests and those of your clients or investors.