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.

Unauthorized Trading – What It Is and How Investors Can Fight Back

Unauthorized trading is one of the most alarming forms of broker misconduct. When a financial advisor buys or sells securities in an investor’s account without permission, it violates trust, breaks industry rules, and can cause serious financial harm. Even a single unauthorized trade may result in substantial losses—especially for retirees, conservative investors, or anyone relying on their portfolio for long-term goals.

Despite strict industry regulations enforced by the Financial Industry Regulatory Authority, known as FINRA, unauthorized trading remains a frequent cause of investor complaints. Many investors don’t discover the activity until reviewing monthly statements, noticing unfamiliar transactions, or realizing their broker is suddenly avoiding calls. Understanding what unauthorized trading looks like, why it happens, and how to respond quickly is essential for protecting your investments and recovering losses.

What Is Unauthorized Trading?

Unauthorized trading occurs when a broker executes a transaction in an investor’s account without first obtaining permission. Brokers are required to obtain client approval before executing trades unless the account is formally designated as discretionary, meaning the advisor has written authorization to trade on the investor’s behalf.

Unauthorized trading may involve:

Buying or selling securities without consent
Reallocating the portfolio without discussion
Trading in riskier or unfamiliar investments
Making frequent trades solely to generate commissions
Executing large trades that exceed agreed-upon limits

In every case, the core issue is the same: the investor did not authorize the trade.

Discretionary vs. Non-Discretionary Accounts

Understanding how your account is classified is crucial.

Non-Discretionary Accounts:
Most brokerage accounts fall into this category. The broker must obtain client approval—typically verbal or written—before executing any trade. Even if the broker believes the trade is beneficial, they cannot act without explicit permission.

Discretionary Accounts:
A discretionary account allows a broker to place trades without seeking individual approval—but only when the investor has provided written authorization and the brokerage firm has accepted and supervised the arrangement. Many unauthorized trading cases involve brokers who treat a non-discretionary account like a discretionary one, executing trades under the assumption the investor will “trust their judgment.”

Without written authorization, such trades violate industry rules and may entitle the investor to full compensation for losses.

Why Brokers Engage in Unauthorized Trading

Unauthorized trading rarely happens by accident. It is more commonly linked to misconduct, negligence, or financial incentives that benefit the broker rather than the investor. Common reasons include:

1. Generating Extra Commissions
Brokers who earn commissions per trade have a financial incentive to increase transaction frequency. Placing unauthorized trades allows them to earn additional compensation without investor consent.

2. Covering Up Mistakes
Some brokers make poor investment decisions and attempt to “trade their way out” of the loss before the investor notices. Unauthorized trades often compound the problem instead of fixing it.

3. Pursuing Personal Strategies or Speculation
A broker may see an opportunity in the market and execute trades without waiting for approval. Even if their intentions are good, the action is still a violation and can expose investors to unnecessary risk.

4. Ignoring Client Instructions
When investors express a desire for conservative strategies or stable income, brokers sometimes go against these wishes by pursuing higher-risk investments in search of better returns (and higher commissions).

5. Fraud or Deception
In more serious cases, unauthorized trading is part of a larger pattern of fraud, such as churning, misrepresentation, or concealment of unsuitable products.

Regardless of motive, unauthorized trading is never acceptable and is grounds for legal action.

Warning Signs of Unauthorized Trading

Many investors do not detect unauthorized trading right away. To protect yourself, pay attention to the following warning signs:

You see unfamiliar trades or investment products on your statements.
Your account has more frequent trading activity than you authorized.
You were not notified before trades were placed.
Your broker becomes evasive or defensive when questioned.
You receive trade confirmations for transactions you did not approve.
Your account value fluctuates unexpectedly.

If any of these signs appear, take action immediately.

What to Do If You Suspect Unauthorized Trading

Taking the right steps early can significantly strengthen your ability to recover losses.

Step 1: Review Your Account Statements Thoroughly
Identify all transactions you do not recognize. Note the date, security, number of shares, and trade type. Keep copies of all statements and trade confirmations.

Step 2: Contact the Brokerage Firm’s Supervisor or Compliance Department
Each firm is required to investigate client complaints. Submit a written dispute so there is a record of your concerns. Ask whether the broker had discretionary authority—if you never signed a discretionary agreement, unauthorized trading is almost certainly a violation.

Step 3: Document Everything
Keep a record of:

Calls and emails to the broker
Responses from the firm
Notes about conversations and explanations given
These records are powerful evidence in legal claims.

Step 4: Consider Freezing or Transferring the Account
If you believe misconduct is ongoing, halt further activity by:

Requesting the firm stop all trading
Transferring your account to a new advisor or firm
Unauthorized trading often continues until decisive action is taken.

Step 5: Consult an Investment Fraud Lawyer Immediately
Unauthorized trading is a serious regulatory violation. A lawyer experienced in investment fraud evaluates the evidence, determines damages, and explains your options. Investors typically pursue recovery through FINRA arbitration, which is faster and more efficient than court litigation.

How a Lawyer Proves Unauthorized Trading

A successful case requires clear, organized evidence showing:

The investor did not provide authorization
The account was not discretionary
The broker’s actions violated FINRA rules
The investor suffered financial losses
Evidence used may include:
Account statements
Email and message logs
Call records
Discretionary agreements (or lack thereof)
Internal firm documents
Attorneys also work with financial experts to calculate damages precisely.

Recoverable Damages

Investors harmed by unauthorized trading may recover:

Out-of-pocket losses
Commissions and fees charged for unauthorized trades
Market losses tied directly to the wrongful transactions
Interest on losses
Attorney fees in certain cases
In severe cases involving intentional misconduct, punitive damages may also be possible.

Why FINRA Arbitration Is the Primary Path for Recovery

Because nearly all brokerage agreements require arbitration, investors usually recover losses through FINRA arbitration rather than court. Arbitration offers:

Faster resolution
Lower costs
Specialized arbitrators who understand financial matters
Legally binding awards enforceable in court

A lawyer manages everything from filing the initial Statement of Claim to presenting evidence at the hearing.

The Emotional Impact of Unauthorized Trading

Beyond financial loss, unauthorized trading creates anxiety and frustration. Investors feel violated, uncertain, and betrayed by someone they trusted. These feelings are normal—and they reinforce the importance of taking swift, informed action. A lawyer provides clarity and strength during this stressful period.

Preventing Future Unauthorized Trading

To guard against future issues:

Review account statements monthly
Set clear written instructions with your broker
Avoid giving verbal trading authority
Use secure online portals to monitor activity
Research broker backgrounds through FINRA BrokerCheck

Vigilance reduces the chance of falling victim again.

Unauthorized trading is a breach of trust and a violation of industry rules. Investors should not hesitate to act when unfamiliar trades appear or when a broker stops communicating. With proper documentation, prompt action, and legal guidance, it is often possible to recover losses through FINRA arbitration. No investor should bear the consequences of trades they never approved. To discuss your situation or explore recovery options, contact Bakhtiari & Harrison.