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 FINRA Sanctions Guidelines: A Guide for Stockbrokers

Understanding the Financial Industry Regulatory Authority (FINRA) sanctions guidelines is crucial as a stockbroker. These guidelines help ensure fair and transparent markets while protecting investors. This blog summarizes the essential aspects of the FINRA Sanctions Guidelines, focusing on what stockbrokers need to know to navigate and comply with these regulations.

What is FINRA? FINRA is a self-regulatory organization that oversees brokerage firms and their registered representatives. Its mission is to protect investors and maintain market integrity through effective regulation.

Why are Sanctions Important? FINRA sanctions are designed to deter misconduct and uphold high standards of business conduct. They aim to prevent future violations and ensure that those who break the rules face appropriate consequences.

General Principles of FINRA Sanctions

Protecting the Public and Market Integrity
- Sanctions are designed to protect the investing public and uphold market integrity.
- They should be significant enough to prevent future misconduct and deter others from similar actions.
Severity for Recidivists
- Repeat offenders face more severe sanctions to prevent future violations and protect market integrity.
- A history of misconduct indicates a higher risk of future violations.
Tailoring Sanctions to Misconduct
- Sanctions should fit the specific nature of the misconduct.
- Both monetary and non-monetary sanctions can be imposed to address different types of violations.
Aggregation of Violations
- Similar violations may be grouped together to determine sanctions.
- Multiple violations may result in higher sanctions.
Restitution
- When possible, sanctions should include restitution to compensate victims for their losses.
- Restitution aims to restore the affected parties to their original financial position.
Ill-Gotten Gains
- Sanctions may include the disgorgement of ill-gotten gains to ensure that violators do not profit from their misconduct.
- Disgorged funds are often used to compensate affected investors.
Considering Other Sanctions
- Sanctions from other regulatory bodies may be considered when determining FINRA sanctions.
- Previous corrective actions by firms can also be taken into account.
Requalification Requirements
- Individuals may be required to requalify for their positions through exams to ensure they understand and comply with regulations.
Inability to Pay
- A respondent’s inability to pay can be considered when imposing fines or restitution.
- Installment payment plans may be offered in some instances.

Principal Considerations in Determining Sanctions

Disciplinary and Arbitration History
- A respondent’s past disciplinary and arbitration history is considered when determining sanctions.
- Repeat offenders face stricter penalties.
Acceptance of Responsibility
- Voluntarily acknowledging and correcting misconduct before detection can mitigate sanctions.
Corrective Measures
- Implementing corrective measures before detection can also reduce sanctions.
Restitution Efforts
- Efforts to voluntarily pay restitution or remedy the misconduct can influence sanction severity.
Supervisory Procedures
- Adequate supervisory, operational, or technical procedures can mitigate sanctions if violations still occur despite these measures.
Training and Education
- Providing adequate training and education on compliance can reduce sanctions if violations occur.
Reliance on Legal Advice
- Reasonable reliance on competent legal or accounting advice can be a mitigating factor.
Pattern of Misconduct
- Engaging in a pattern of misconduct or numerous acts of misconduct results in harsher sanctions.
Intent and Harm
- Intentional misconduct and the resulting harm to others are significant factors in determining sanctions.

Types of Sanctions

Firms:

Fines: Monetary penalties based on the severity and nature of the violation.
Suspensions: Temporary removal from the industry or specific activities.
Expulsions: Permanent removal from the industry.
Other Sanctions: Requirements such as hiring independent consultants, revising procedures, or implementing heightened supervision.

Individuals:

Fines: Monetary penalties.
Suspensions: Temporary ban from the industry or specific activities.
Bars: Permanent ban from the industry.
Other Sanctions: Requalification requirements, heightened supervision, or other remedial actions.

Specific Violations and Sanctions

Activity Away from the Firm

Outside business activities and selling away (private securities transactions) must be properly disclosed and approved.
Failure to do so can result in fines, suspensions, or expulsion.

Anti-Money Laundering (AML)

Firms must have effective AML programs, including monitoring and reporting suspicious transactions.
Deficiencies can lead to significant fines and suspensions.

Financial and Operational Practices

Accurate recordkeeping, customer confirmations, and compliance with net capital requirements are essential.
Violations can result in substantial fines and suspensions.

Impeding Regulatory Investigations

Failing to respond truthfully or timely to FINRA requests can lead to severe sanctions, including expulsion.

Improper Use of Funds

Conversion or misuse of customer funds or securities is a serious violation that often results in expulsion.

Bakhtiari & Harrison – Experienced FINRA Disciplinary Defense Lawyers

Navigating FINRA regulations and avoiding disciplinary actions can be complex and challenging. This is where Bakhtiari & Harrison come in. As experienced FINRA regulatory defense lawyers, they focus on helping stockbrokers and financial firms manage compliance issues and defend against disciplinary actions.

With a deep understanding of FINRA rules and a proven track record of success, Bakhtiari & Harrison can provide the guidance and representation you need to protect your career and reputation. Whether you are facing an investigation or looking to strengthen your compliance program, their expert legal services are invaluable.

Understanding and adhering to FINRA’s Sanctions Guidelines is crucial for stockbrokers. By maintaining high standards of conduct, implementing robust compliance programs, and promptly addressing any issues, stockbrokers can avoid disciplinary actions and contribute to the integrity of the financial markets. Always stay informed about regulatory updates and seek professional guidance to ensure compliance and protect your career.