Many investors who call our offices are surprised to learn that if they want to sue their stockbroker or financial advisor that they have waived their right to sue them in court/ This does not mean that you do not have any legal rights.  It simply means that you must bring your claims against your stockbroker through the FINRA arbitration system. FINRA stands for the “Financial Industry Regulatory Authority,” which provides the primary arbitration forum for harmed investors to file their claims.

What are Arbitration Clauses and What should Investors Know?

If you lost money in your  investment  account at a brokerage firm such as Merrill Lynch, Morgan Stanley, UBS, Charles Schwab and even a self-directed account on an app such as Robinhood , your account agreement likely contains an arbitration agreement requiring that your claims be arbitrated through FINRA. 

If you have a brokerage account, you might be surprised to know that  you’ve agreed,  by signing a new account form, to arbitrate your claims regarding your brokerage account. Buried in your account agreement is something called an “arbitration clause.” This clause creates a contractual agreement between you and your brokerage firm which requires that all disputes be resolved through the FINRA arbitration process. There is really no way around this clause, which mandates FINRA arbitration instead of litigation in court.  

The U.S. Supreme Court has ruled that these clauses are enforceable, meaning that you can’t get out of them because they found that FINRA arbitration is just as fair to consumers as being in court. One significant difference between FINRA arbitration and court litigation is that there’s  an extremely limited  and narrow right of appeal. In fact, in some states like Florida, you can be sanctioned and have to pay money to the opposing side for even trying to appeal a FINRA arbitration award without adequate grounds. Basically, the FINRA decision is final and binding in just about every case. A lot of folks mistakenly believe that arbitration is just the first step, and that then they can complete their case in a  court. This is a wrong assumption. FINRA arbitration is generally your one shot to have your investment fraud or negligence case heard and that’s it. Because of this, it’s crucial that  you hire a FINRA attorney who knows the ins and outs of this practice.

How Do I Start a FINRA Arbitration? 

First: Hire a FINRA Arbitration Attorney

Like going to a doctor who specializes in your illness or condition, it is important to hire an experienced  FINRA attorney who  knows how to  represent investors in FINRA arbitration cases.

Investor claims filed in FINRA are subject to the FINRA Code of Arbitration Procedure which provides the procedures which must be followed. Hiring an investment fraud lawyer who knows these rules, as well as one who is familiar with the arbitration process, can maximize any recovery you might get in your case.

When looking to hire an  investment fraud attorney, it is helpful to ask the following questions to be sure that the lawyer you have found is experienced enough to  help recover your investment fraud losses. You should ask about that attorney’s experience.

While many attorneys advertise on the Internet that they handle investment fraud cases,  in reality there are very few who have actually have 20 or more years of experience handling FINRA arbitration cases. Be certain that you ask any  potential lawyer how many investment fraud cases they have handled and the number of years of experience that attorney has handled securities arbitration cases in FINRA.  Choosing a highly experienced investment fraud lawyer helps in many ways. For example, that attorney will know the opposing attorneys who regularly represent the defendant brokerage firms. These attorney relationships are important to moving your case along as well as in settlement discussions. Importantly, an experienced FINRA arbitration attorney will know many of the arbitrators who might be appointed to decide your case. A FINRA attorney who know which arbitrators to choose (and most importantly which arbitrators not to choose) to hear your case can be quite helpful to the ultimate outcome of your case. Additionally, hiring an attorney who is familiar with the special  FINRA discovery process  and who knows what documents and information to seek from the defendant brokerage firm to help you prove your case is also important. A FINRA arbitration attorney who knows where to look for these smoking gun documents can be instrumental to proving your claim. 

Step Two: Filing Your FINRA Claim 

Once you hire a FINRA attorney, he or she will investigate your claims and the individual brokers and firms involved to make sure that there is a valid case to be brought and that any damages are recoverable from the firm or broker. Once that is complete, the next step is the preparation of a Statement of Claim to be filed electronically with FINRA. 

An investor must file a Statement of Claim to begin the FINRA arbitration process. This document sets out the claim against the brokerage firm and must state the facts of the case and the damages sought.

Drafting a FINRA arbitration statement of claim requires skill and experience in this area. Your FINRA attorney must know what laws or FINRA rules have been violated and what types of damages are recoverable for these violations. There are special time limitations for bringing claims applicable to FINRA arbitration that are different from court. An experienced lawyer will know these rules. 

Typically, but not always, an arbitration panel is made up of three arbitrators. Unlike a jury trial in court, the FINRA arbitrators act as both a judge and jury, deciding the legal issues and evaluating the facts. This is why a statement of claim is so important as it tells both the factual story and legal claims to the arbitrators who will be deciding your case.

Step Three: The Brokerage Firm’s “Answer”

After officially filing your case,  the brokerage firm is served with the claim by FINRA and has a period of time to file its “Answer.”  In many cases, the Answer is full of inaccuracies or false interpretations of the facts. Often, the investor claimant is upset at the positions taken and the twisting of facts against them,  placing  blame on the investor. However, this is advocacy and it is the job of the opposing attorney to represent their client to the best of their ability. An experienced investor attorney will know how to conduct discovery (find the documents and witnesses) to try and disprove the allegations in the Answer as well as to prove the facts set out in your Statement of Claim.

Step Four: FINRA Arbitrator Selection

After the  Answer is filed, your attorney will select the arbitrators from a list of potential  FINRA arbitrators. Your attorney is allowed to strike some arbitrators from the list and to rank the remaining ones. Certain information on these arbitrators is contained in their disclosures, but other information may not be. A well seasoned FINRA attorney  will be familiar with many of the arbitrators on the  FINRA roster and be able to make reasoned decisions about who they select and rank,  and more importantly, who to strike.

FINRA takes the two competing lists from the lawyers and matches the ranked arbitrators in order to create the arbitration panel for your case. Once the panel is in place, the attorneys for each side attend an Initial Pre-Hearing Conference via telephone with the arbitrators. During this conference the dates of the final hearing as well as the deadlines for discovery and motions are set. 

Step Five: FINRA Discovery 

Discovery in a FINRA arbitration consists only of a document exchange and (narrow) information exchange between the parties. FINRA requires or strongly suggests that particular types of documents are produced by each party to the arbitration, but often the brokerage firms object to producing some of these “presumptively discoverable”  documents. An experienced FINRA arbitration attorney will be prepared to file the appropriate motions to get all of the documents necessary to prove your case (and disprove the brokerage firm’s version of the facts). 

Once discovery is complete, but before the final arbitration hearing, the parties usually discuss whether the case can be settled and the potential for mediation. The majority of FINRA cases settle at a mediation before the final hearing. Mediation is not a trial. It is a  confidential one-day non-binding settlement conference. Unlike arbitration, it is not mandatory. But, usually the parties agree to conduct a FINRA mediation and it often results in a successful settlement.  Sometimes, however, the parties cannot agree and the case will go to a final arbitration hearing.

Stage Five: The Final FINRA Arbitration Hearing

If the case does not settle, the last stage is the final hearing. FINRA Arbitration hearings typically range from a few days to several weeks. The final hearing usually takes place in a conference center at one of  FINRA’s  offices close to the investors’ residence. Recently, final hearings have been conducted virtually due to the pandemic.

Similar to a court trial, there are opening statements, direct and cross-examinations, arguing of motions, and closing arguments.  Instead of a jury verdict, the arbitrators issue what is called an “Award.” The Award is not done at the end of the hearing, but instead is entered within 30 days of the closing arguments.  

Once the Award is published which gives damages to the investor, the brokerage firm must pay it within 30 days. Because  FINRA arbitration appeals are extremely limited, most likely this payment will be made to you at that time . 

Request Your Free Investment Fraud Consultation

If you have suffered investment losses, you need to preserve your legal rights and by seeking legal advice right away. Consult with an experienced investor fraud attorney free of charge. 

Get Legal Help Today

 Act as soon as possible to retain an experienced FINRA arbitration attorney. If you or a loved one have suffered investment losses as a result of any type of investment fraud or broker negligence, contact the offices of Investment Fraud lawyer Melanie Cherdack for a free consultation. Because she has been in the trenches as a former Wall Street attorney, Melanie Cherdack and her team of experienced attorneys have seen just about every type of investment fraud or investment scam. While almost every investment carries a degree of uncertainty and risk, you may have been unnecessarily exposed to such risk. Former Wall Street securities attorney Melanie S. Cherdack and her team of lawyers represent individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States. Contact us by filling out our online contact form, or calling 844-635-1609 or 305-349-2336.