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.

Investigations

BREIT Investor Losses Investigated by Bakhtiari & Harrison

Bakhtiari & Harrison is investigating potential claims on behalf of investors who purchased BREIT through their financial advisor or brokerage firm. BREIT REIT, launched by Blackstone, was initially presented as a stable investment option with the potential for steady income and capital preservation. Its appeal was especially strong among retirees looking for low-risk investment opportunities. The marketing materials highlighted BREIT’s diversified real estate portfolio, professional management, and the potential for consistent returns. Despite its initial promise, BREIT has faced several challenges that have impacted its performance.

SREIT Investor Losses Investigated by Bakhtiari & Harrison

Bakhtiari & Harrison is investigating potential claims on behalf of investors who purchased SREIT through their financial advisor or brokerage firm. The $10 billion fund, managed by Barry Sternlicht-led Starwood Capital Group, invests in various real estate sectors, including multi-family and industrial properties. These investments have been heavily impacted by high interest rates and concerns over loan defaults, contributing to investor losses.

Sanford Bernstein/Alliance Bernstein Options Advantage Fund Losses

Bakhtiari & Harrison represents investors that have suffered losses due to investment in the Sanford Bernstein/Alliance Bernstein Options Advantage Fund. Bernstein brokers solicited its clients to invest in a new complex options strategy titled “Options Advantage” described as “seeking incremental return in a low yield environment.” It is alleged that instead of what was presented, Bernstein, utilizing its discretion, speculated on the direction of markets via the purchase and sale of call and put options on the S&P 500, which became a series of risky bets on the direction the market indexes utilizing the leverage of margin.

Emerson Equity Sale of GWG L Bonds

Bakhtiari & Harrison is investigating potential claims on behalf of investors who purchased L Bonds of GWG Holdings Inc. (GWGH), through representatives of Emerson Equity LLC. Representatives of Emerson Equity allegedly recommended the L Bonds as safe with a 5% interest rate which was suitable and appropriate for retired and other conservative income investors. L Bonds were actually speculative income paying investments due to the distressed financial condition of the issuer of the bonds.

iCap Equity Investor Losses

On September 29, 2023, iCap Equity, LLC and its associated entities sought Chapter 11 bankruptcy protection in the Eastern District of Washington. This move followed the departure of iCap’s CEO and the cessation of investor interest payments back in March. This bankruptcy action encompasses 26 affiliated companies. According to the filing, iCap’s assets ranged from $50 million to $100 million, while its liabilities fell between $100 million and $500 million. This implies a precarious situation for investors, as it signals the likelihood of significant unpaid liabilities in the event of liquidation.

Master Limited Partnerships

Master limited partnerships, or MLPs, have become big business and more prevalent in investor portfolios over the past couple of years. They provide investor exposure to the growing oil and gas infrastructure of America, and they come with attractive distributions for investors seeking dividend income and capital flows.

GPB Capital Holdings Losses

Bakhtiari & Harrison is investigating the brokerage firms and sale practices regarding the sale of GPB Capital Holdings investments in high risk private placements. GPB Capital Holdings is a New York-based investment firm that offered nine different private placements: GPB Automotive Portfolio, LP; GPB Cold Storage LP; GPB Holdings, LP; GPB Holdings II, LP; GPB Holdings III, LP; GPB Holdings Qualified, LP; GPB NYC Development, LP; and GPB Waste Management Fund, LP.

Asset Allocation

Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The recent market volatility has exposed imprudent allocations in accounts that have resulted in significant losses to many investors. When asked about why account values have dropped, brokers often respond by blaming it on the market instead of recognizing that inappropriate allocations are actually to blame.

SPACs (Special Purpose Acquisition Company)

A special purpose acquisition company is a shell company set up by investors with the purpose of raising money through an IPO to acquire another company.

Adjustable Rate Certificates of Deposit (CDs) and Steepeners

Bakhtiari & Harrison announces that the firm is investigating financial service firms that recommended adjustable rate Certificates of Deposit or Steepeners to their clients. The firm believes that Steepeners, adjustable rate Certificates of Deposit and other structured notes may have been marketed to investors as low risk fixed income options. Many investors were likely not adequately informed of the risk involved in purchasing and holding these products.

Oil and Gas Investment Schemes

Oil and gas investment scams are alive and well. High oil prices have created a heightened interest in investments in energy-related business ventures. Most oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate in their marketing and responsible in their operations. However, as in many other investment opportunities, it is not unusual for unscrupulous promoters to attempt to take advantage of investors by engaging in fraudulent practices.

The Woodbridge Group of Companies, LLC

Woodbridge Wealth, a California-based firm, sells structured financial products to investors, often through intermediary brokers. Woodbridge has reportedly raised over $1 billion by selling investors instruments known as First Position Commercial Mortgages (“FPCMs”). Woodbridge’s FPCM sales have resulted in certain actions and/or investigations by regulators, including state regulators in Pennsylvania, Michigan, Massachusetts, and Colorado, as well as the U.S. Securities and Exchange Commission (“SEC”).

Merrill Lynch Market-Linked Notes

Market-Linked Notes were recommended by Merrill Lynch financial advisors to customers as a stable source of income. In many instances, Market-Linked Note investments tracked oil prices, energy pipelines, or commodity baskets and have resulted in significant investor losses.

Aequitas Capital Investigation

Recent news reports revealed that Aequitas, blaming “liquidity challenges”, cash flow issues, and a shortage of new investments, has failed to repay investors on schedule and has suspended any repayment of investors’ Aequitas private notes. These recent news reports also revealed sudden, massive layoffs by Aequitas, as well as investigations of Aequitas by the Securities and Exchange Commission and the federal Consumer Financial Protection Bureau.

Third Avenue Focused Credit Fund

Third Avenue Management LLC has parted ways with Chief Executive Officer David Barse after the collapse of the company’s Focused Credit bond fund. The collapse of Third Avenue’s Focused Credit Fund jolted Wall Street and renewed worries about the difficulty of trading securities on the U.S. bond market. The blow-up of the Focused Credit Fund was the biggest mutual fund failure since the financial crisis.

Morgan Stanley’s Recommendations of Cobalt International Energy and Seadrill Ltd.

Bakhtiari & Harrison is investigating potential claims of unsuitability and over-concentration relating to Morgan Stanley Smith Barney’s recommendations of Cobalt International Energy and Seadrill Ltd. The share prices of Cobalt and Seadrill have dramatically dropped in the preceding months causing substantial monetary losses to holders of these stocks.

Wells Fargo’s High Pressure Sales Culture

On May 5, 2015 Los Angeles City Attorney Mike Feuer announced the filing of a lawsuit against Wells Fargo for allegedly opening unauthorized customer accounts. The lawsuit, filed by City Atty. Mike Feuer, alleged that the bank’s high-pressure sales culture set unrealistic quotas, spurring employees to engage in fraudulent conduct to keep their jobs and boost the company’s profits.

Business Development Companies (BDCs)

The latest “hot” product being offered from Wall Street to Main Street investors is an investment in Business Development Companies (BDCs). Unfortunately, many financial advisors have pitched these products to their retail clients without having conducted the necessary due diligence on them or, of equal importance, without having an informed appreciation for the potential pitfalls of BDCs as their higher yields are typically also associated with significantly higher risks – many of which are being concealed from investors.

REITs – Real Estate Investment Trusts

With the collapse of the housing markets and real estate sector, REIT fraud has become more apparent. Investors are bringing claims against their brokerage firm or financial advisors that recommended unsuitable or fraudulent REITs that were Ponzi schemes or for failing to disclose the high fees and commissions associated with the sale of REIT investments.

JP Morgan Chase’s Sale of Proprietary Mutual Funds

After the 2008 financial crisis allegations have surfaced that JP Morgan Chase turned to ordinary investors to make up for profits lost by the bank. Some current and former brokers say it emphasized its sales over clients’ needs. Financial advisers say they were encouraged, at times, to favor JPMorgan’s own products even when competitors had better-performing or cheaper options.

Reverse Convertibles

Brokerage firms and banks have been issuing and marketing complex investments known in the industry as “structured products” to individual investors. Among these structured investment products are “reverse convertibles,” which are popular in part because of the high yields they offer. Also known as “revertible notes” or “reverse exchangeable securities”, these instruments are sold under a variety of proprietary names that may or may not use the term “structured” to describe the product. Reverse convertibles are debt obligations of the issuer that are tied to the performance of an unrelated security or basket of securities. Although they are sometimes described as debt instruments, they are more complex than traditional bonds and involve elements of options trading. Reverse convertibles expose investors to heightened risks not associated with bonds.

TICs – Tenant In Common Investments

A Tenant in Common property (“TIC”) allows the seller of real estate to qualify for a 1031 tax free exchange of the property sold in exchange for an ownership interest in another investment property. Brokerage firms have begun selling fractional ownership interests in real estate to persons who have recently sold or are considering the sale of an appreciated piece of property as an alternative investment vehicle that preserves the tax free status of a property exchange.

State Street Bank and Trust Company and State Street Global Advisors, Inc.

Assets in State Street’s five bond mutual funds were down sharply in 2007. As of October 2007 assets in the five funds suffered losses of 43% for 2007. The funds were marketed to institutional investors as safe, conservative investments. Investors in the funds included non-profit organizations, private and public sector pension funds and other instructional investors.

Subprime Investments

Recent turmoil in the credit markets has begun to expose the lack of disclosure and in some cases misleading sales presentations made by brokerage firms to their customer regarding the sale of Mortgage Backed Securities (MBS) or Asset Backed Securities (ABS).