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.

Who Investigates Investment Fraud?

Investment fraud is a serious problem for the investing community. It can lead to significant financial damage, it erodes trust in markets and people. Without help, victims often struggle to recover their losses.

Fortunately, there are several regulatory agencies and organizations dedicated to investigating such fraud and holding wrongdoers accountable. These bodies not only work to protect investors but also aim to maintain the integrity of financial markets.

In this blog, we will look at who investigates investor fraud. We will also discuss how these investigations happen. Finally, we will share steps you can take if you think you have been a victim.

The Role of the Securities and Exchange Commission (SEC) in Investment Fraud

The Securities and Exchange Commission (SEC) is the primary federal agency responsible for regulating the securities industry and enforcing securities laws. One of the SEC’s main goals is to protect investors. They do this by looking into investment fraud, like Ponzi schemes, insider trading, and market manipulation.

The SEC typically initiates investigations when it receives complaints or tips about potential fraud. These can come from individual investors, whistleblowers, or other regulatory agencies. The SEC’s Division of Enforcement investigates companies, brokers, and financial advisors. They look into those suspected of breaking securities laws.

If the SEC finds proof of investment fraud, it can take legal action. This may include civil lawsuits or administrative proceedings. The SEC cannot file criminal charges. However, it often works with the Department of Justice (DOJ) on criminal investigations when needed. The SEC also has the authority to impose fines, revoke licenses, and ban individuals from the securities industry.

The Financial Industry Regulatory Authority (FINRA)

The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees brokerage firms and their employees. It works under the SEC’s supervision. Its job is to make sure brokers follow fair practice rules when dealing with investors.

FINRA particularly focuses on broker misconduct, such as unauthorized trading, excessive commissions, and misrepresentation of investment products. If you suspect your broker has engaged in fraudulent behavior, you can file a complaint directly with FINRA, which will initiate an investigation.

FINRA has its own enforcement division that conducts investigations, interviews witnesses, and gathers evidence. In cases where investment fraud is found, FINRA can impose penalties such as fines, suspensions, or expulsion from the industry. FINRA also provides a dispute resolution service, including arbitration and mediation, for investors who want to resolve conflicts with their brokers.

State Securities Regulators

Each state has its own securities regulatory body, often called the Office of the State Securities Commissioner or Division of Securities. These agencies enforce state securities laws, commonly referred to as “Blue Sky Laws.” While the SEC handles the regulation of national and interstate securities markets, state regulators focus on activities that take place within their borders.

State securities regulators investigate fraud committed by local investment firms, brokers, or individuals who are not registered with the SEC. They may also work alongside federal agencies like the SEC and FINRA to investigate larger, multi-state fraud cases. Investors can file complaints with their state securities office if they believe they’ve been defrauded by a local broker or investment professional.

State regulators have the authority to issue fines, revoke licenses, and refer cases for criminal prosecution. In many instances, they offer a more accessible route for investors who have been wronged on a smaller scale but still seek justice.

The Department of Justice (DOJ)

The Department of Justice (DOJ) plays a critical role in prosecuting criminal investment fraud cases. While the SEC and FINRA can only pursue civil or administrative penalties, the DOJ can bring criminal charges against individuals or firms that commit serious fraud, such as insider trading or large-scale Ponzi schemes.

The DOJ often works in conjunction with the SEC or state regulators to investigate investment fraud. When a case is referred to the DOJ, the agency conducts its own criminal investigation, which may involve the FBI, IRS, and other law enforcement agencies. Criminal cases brought by the DOJ can result in significant penalties, including prison time, forfeiture of assets, and restitution to victims.

The Commodity Futures Trading Commission (CFTC)

While the SEC oversees securities, the Commodity Futures Trading Commission (CFTC) is responsible for regulating the commodity futures and options markets. The CFTC investigates fraud related to commodities, such as oil, gold, and agricultural products, as well as derivative contracts like futures and swaps.

If you’ve been defrauded in a commodities-related investment, you can file a complaint with the CFTC. The agency has the power to bring enforcement actions against individuals or firms that manipulate markets or engage in deceptive practices. The CFTC also cooperates with the DOJ for criminal prosecutions in cases of commodities fraud.

Steps You Can Take If You Suspect Fraud

If you believe you’ve been a victim of investment fraud, it’s important to act quickly to protect your financial interests and assist in any investigation. Here are a few steps to take:

Gather evidence: Collect all relevant documents, such as account statements, contracts, and communications with the individual or firm in question. These will be crucial in proving your case.
Report the fraud: File a complaint with the appropriate regulatory agency. If the fraud involves securities, contact the SEC or FINRA. For commodities fraud, report it to the CFTC. Don’t forget to check with your state securities regulator as well.
Consult a lawyer: Investment fraud cases can be complex, and having legal support is critical. An experienced attorney can help you understand your rights, gather evidence, and navigate the legal process.
Cooperate with the investigation: If a regulatory body opens an investigation into your case, cooperate fully. Provide them with all necessary documents and be available for any follow-up questions or interviews.

The Investment Fraud Attorneys at Bakhtiari & Harrison Can Help

If you believe you’ve been the victim of investment fraud, don’t hesitate to take action. The agencies discussed above are dedicated to protecting investors like you, but you may also need legal guidance to navigate the complexities of your case. At Bakhtiari & Harrison, we are committed to helping victims of investor fraud recover their losses and hold wrongdoers accountable. Contact us today to discuss your situation and learn more about your legal options. We’re here to help you get the justice you deserve.