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.

REIT Attorneys

A Real Estate Investment Trust (REIT) is a type of real estate company that generally makes its common shares available to the investing public. While many REITs are publicly traded on stock exchanges, a significant number operate as privately held entities, offered directly to investors as partnerships. REITs are distinguished by two key characteristics: their primary focus on managing income-producing real estate and the regulatory requirement to distribute the majority of their taxable income to shareholders as dividends each year.

These characteristics make REITs an attractive option for investors seeking regular income streams and potential tax advantages associated with dividend income. However, the unique structure and operations of REITs also present specific legal complexities and compliance requirements that must be carefully navigated. This is where REIT attorneys play a crucial role. Experienced in real estate and securities law, REIT attorneys are vital for ensuring that these entities operate within the legal frameworks set by regulatory bodies such as the SEC.

REIT attorneys provide essential services across various stages of a REIT’s lifecycle, from formation and initial public offering (if publicly traded) to ongoing compliance and operational issues. They help draft the necessary documentation for establishing a REIT, advise on compliance with securities laws, handle transactions involving property acquisitions and divestitures, and assist with corporate governance and shareholder relations.

Furthermore, for investors considering participation in REITs, especially those that are privately held, legal consultation with a REIT attorney is invaluable. These professionals can offer guidance on the specifics of the investment, including reviewing offering documents and advising on the rights and obligations that come with REIT investments. They can also provide representation in the event of disputes or legal issues arising from REIT investments.

In summary, REIT attorneys are indispensable to both the operators of REITs and the investors who engage with them. Their expert legal support ensures that REITs not only comply with complex regulatory requirements but also maintain practices that protect the interests of all parties involved. Whether dealing with public or private REITs, these attorneys are key to managing the legal intricacies of investing in real estate through this unique entity.

To qualify as a REIT with the Internal Revenue Service (IRS), a real estate company must agree to pay out in dividends at least 90% of its taxable profit (and fulfill additional but less important requirements). By having REIT status, a company avoids corporate income tax. Regularly formed corporate entities pay taxes on their profits, then decide how to allocate their after-tax profits between dividends and reinvestments, a REIT simply distributes nearly all of its profits and in return is not taxed on those profits.

Real Estate Investment Trusts (REITS) were heavily pushed by many brokers in the past few year as stable, conservative investments. Sales for REITs totaled over $12 billion in 2007, followed by over $10 billion in 2008. What is hidden behind the numbers is high commissions and expenses giving brokers the incentive to market nonpublic REITs as conservative, reliable income investments suitable even for those reaching retirement and beyond. The marketing and talk, however, could not hide these investments for what they truly were: lacking liquidity, risky, and unsuitable for many.

REITs use investors’ capital to invest in a multitude of properties with profits being generated on rent and capital appreciation. For many, misleading marketing and broker misrepresentations hid the fact that nonpublic REITs had an artificially stable share price, lacked liquidity, and concealed high broker commissions from investors.

Mortgage REITs

Fewer than 10% of REITs fall into a special class called mortgage REITs. These REITs make loans secured by real estate, but they do not generally own or operate real estate. Mortgage REITs require special analysis. They are finance companies that use several hedging instruments to manage their interest rate exposure.

Equity REITs

The vast majority of REITs focus on the “hard asset” business of real estate operations. These are called equity REITs. Equity REITs tend to specialize in owning certain building types such as apartments, regional malls, office buildings or lodging facilities. Some are diversified and some are specialized, meaning they defy classification – such as, for example, an REIT that owns golf courses.

Hybrid REITs

Hybrid REITs invest their assets in mortgages and hard assets. In effect, they employ strategies used by both Equity REITs and Mortgage REITs.

What Type Of Asset Class Do REITs Belong To?

REITs are dividend-paying stocks that focus on real estate. If you seek income, you would consider them along with high-yield bond funds and dividend paying stocks. Consider 20 years of returns for the NAREIT Equity REIT Index (an index of about 150 traded REITs) between 1984 through 2003. Returns solely from dividends have averaged about 8% and never fallen below 4.8%. Stable dividends combined with price volatility create a total return that is often promising for investors, but volatile nonetheless.

Artificial Share Price

Because nonpublic REITs were not traded publically, the REIT managers would determine the value of the portfolio themselves, as opposed to free market valuation. This created a conflict of interest with the managers who selected the properties for the REIT being the same ones that determined their value. When investors went to sell their nonpublic REIT, they would be quoted as low as $.45 per dollar invested, though their most current statements showed the value as being $.85 per dollar invested.

Lack of Liquidity

One component of many nonpublic REITs was a redemption program that would allow investors to sell their shares if they so wished. However, these programs usually limited investors to selling their shares only at certain times, and only allowed investors to sell a small percentage of their shares. For those that needed quick access to their capital, this was an unsuitable investment.

Lack of Transparent Commissions

There were many nonpublic REITs that charged 15% of initial investor capital as, “fees.” What was not frequently disclosed, however, was that more than half of that 15% was often given to a broker as commission for selling shares of a given REIT to an investor. In some cases, such an omission of fact is considered a violation of state and/or federal securities law. In 2009, Ameriprise Financial Services paid $17.3 million to settle a Securities and Exchange Commission (SEC) complaint that customers were not informed about incentives Ameriprise brokers received to sell nonpublic REITs.

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, for fraudulent REITS that were Ponzi schemes or for failing to disclose the high fees and commissions associated with the sale of REIT investments.

If you are an investor that lost more than $100,000, you should consider all legal options.