If you are reading this blog, it’s likely that you lost money due to investment fraud or broker negligence and are seeking to understand the FINRA arbitration claim process and perhaps find an experienced attorney to handle your case. Our experienced and dedicated attorneys have recovered tens of millions of dollars for investors who have been the victims of investment fraud or brokerage fraud. We have over 25 years of experience representing investors in FINRA arbitrations. Chances are, if you have a brokerage account, you are obligated to bring your claims before FINRA in its arbitration forum.  This is because  FINRA member firms have agreements with the customers subjecting them to mandatory arbitration.  This should not concern you because your securities fraud claim will be heard, just not in a traditional court.

Why am I stuck in Arbitration?

When you opened up an account with your brokerage firm, you probably signed a document or clicked an agreement giving up your legal right to bring a lawsuit for securities fraud or negligence. If you do not remember doing this, this is not uncommon. The vast majority of brokerage firm and investment account customer agreements contain a FINRA pre-dispute arbitration clause.

There has been a lot of discussion in the media about mandatory arbitration in consumer cases and some people think this is unfair. However, the Supreme Court of the United States has decidedly ruled that brokerage firms have the right to do so. While giving up the right to bring a lawsuit may seem like a negative thing to an investor, all in all, the FINRA arbitration has some big benefits as well. 

The prime benefits of FINRA arbitration versus court are 1) the process is quicker (generally you will get to a hearing within a year when court cases can take years to go to trial); 2) Unlike court, there are no depositions and the only discovery is an exchange of documents by the parties; 3) FINRA arbitration is much cheaper due to the streamlined nature of the process; 4) you get to rank and select the arbitrators who will hear your case, rather than your case being assigned to a judge; 5) there is generally no right of appeal—absent very narrow circumstances; 6) most FINRA arbitration cases tend to settle prior to a final hearing while court cases may not since the defendant always has the right (and money to fund) an appeal. 

Be Sure to File Your FINRA Arbitration Claim on Time

Unlike court, the FINRA forum has an “eligibility” rule, requiring that all claims must be brought within six years of the occurrence or event giving rise to the dispute.  If you fail to take action in time, you may lose the ability to take action at all.

However, it must be noted that securities dispute cases are incredibly complex and this is not the only time rule. In addition to the eligibility, various types of claims may have their own statutes of limitations that are even shorter. For example,  Florida has enacted a four-year statute of limitations for negligence claims, and various states have their own statutes of limitation which could be shorter. 

If you feel you have been the victim of investment fraud or negligence, you should not delay. Act as soon as possible to retain an experienced FINRA arbitration attorney. 

Contact us today for a free consultation using our online contact form, or by calling 888-768-2499.

What Happens When I File a FINRA Arbitration?

FINRA operates the largest securities dispute resolution forum in the United States.  FINRA arbitration is similar to going to court, but is usually faster, cheaper and less complex. The parties at the final hearing will present the issues through witness testimony and documents like they would in court. Instead of a judge, however, there is either a single arbitrator or a panel of three arbitrators. These arbitrators weigh the evidence and issue an award in the case similar to how a judge would rule in  a court case, but the legal rules of what evidence may or may not be presented in a hearing do not strictly apply in arbitration. While FINRA Arbitrators are guided by the underlying policies of the law, they are free to interpret legal concepts with more flexibility than judges. 

The FINRA arbitration process differs depending on the size of the claim, which is the amount of money you are seeking in the case. Larger claims (those over $50,000) involve an in-person hearing decided by a panel of three arbitrators, with one serving as the chair. Smaller claims are decided by one arbitrator with the option to have the case heard in person, telephonically or solely on the papers. The smallest claims may be decided through a Simplified Arbitration Process. 

The typical arbitration case settles in just over a year. When an arbitration case goes to hearing, it typically takes 16 months. Either way, arbitration is usually faster than most court cases. A primary reason is that the process of exchanging documents and identifying witnesses—called discovery— is much more limited in arbitration. Another reason is that the ability of any party to appeal an arbitration decision— to have a higher court reconsider the decision by the arbitrators—is extremely limited. Because of this, the related costs, such as attorney fees and other expenses, are much lower than in securities fraud cases that go to court. 

Filing the FINRA Arbitration Claim

There is a FINRA Code of Arbitration which contains the rules governing your case. A FINRA arbitration begins by filing a Statement of Claim. This will include a description of the dispute, the parties involved and the amount of money sought as damages. The Statement of Claim sets forth both the facts and the basic legal principles  supporting your case. FINRA additionally requires a Submission Agreement, which is essentially an agreement to abide by FINRA’s jurisdiction to hear the case and to follow the FINRA rules and procedures for arbitration. It also establishes that, if the case ends with a hearing, the parties agree to abide by the arbitrators’ decision. The papers are generally filed electronically through FINRA’s portal, and FINRA will serve them on the Respondent brokerage firm.

There are filing fees associated with filing a FINRA case which are based upon the size of your claim. In cases where a Claimant can establish that they are suffering from financial hardship or lack the funds to pay the filing fee, FINRA may waive this fee. Also, if the Claimant is elderly or has a serious health issue, FINRA provides an expedited process to reduce the time it takes to complete the arbitration.

Hearing Location And Arbitrator Selection

Once the Statement of Claim is filed and served, FINRA will assign it to a regional office and arbitrators lists will be generated generally using the arbitrators who are in or near the hearing location. The hearing location is usually  where the Claimant lived at the time of the dispute, but this location can be changed upon the agreement of the parties or for other proper reasons. There is at least one, and sometimes more, hearing locations in every state, plus the District of Columbia, Puerto Rico and London—69  in total. 

Once your Statement of Claim is served, the brokerage firm Respondent has 45 days to research the claim and to prepare and serve a response. In it, the Respondent is allowed to  outline the defenses the firm or broker plans to argue in its defense. Then, FINRA will generate and provide identical lists of possible arbitrators for the case to the parties. With those lists, FINRA also provides a detailed report on each arbitrator’s background which includes things such as  the arbitrator’s employment background, education and training. This report also provides a list of cases in which each of the arbitrators has issued a final decision, called an award. These awards are available without charge on FINRA’s website. Each  side is allowed to remove or strike some of the arbitrators on the list from consideration and to rank, in order of preference, the remaining names. This process gives both parties the right to choose who the arbitrators will be. The lists divide arbitrators into two categories: those who have a connection to the securities industry (non-public arbitrators) and those who do not have a connection to the securities industry  (public arbitrators). There is also a list of chair-qualified arbitrators who are all public. 

In order to be a chairperson on a FINRA case, the individual must be a public arbitrator, and they must have special training and experience on previous arbitrations. A public arbitrator serves as the sole arbitrator in cases with  smaller claims. In larger customer claims with a three  arbitrator panel, the Claimant has the right to strike all of the non-public arbitrators, or rank any that they like.  In all cases, arbitrators sign an oath promising to remain neutral.  Once the arbitrators are chosen, the panel holds an initial pre-hearing conference with the attorneys—typically over the telephone. During the call, the arbitrators and lawyers discuss procedural issues, the mediation alternative and the scheduling of discovery, motion deadlines and the dates of the in-person final hearing. 

Discovery is Limited to a Document Exchange

This is when the parties exchange documents and identify their witnesses. FINRA has a Discovery Guide which outlines all of the documents and information which  should be exchanged by claimants and respondents in customer arbitrations, depending on the types of issues. These are deemed “presumptively” discoverable  documents. The parties may also supplement these document requests with an additional request particular to your case. An experienced FINRA attorney will know what documents the brokerage firm has and what to look for. Oftentimes there are objections to producing these documents and the FINRA attorney will file a motion to compel the production stating the reasons that such evidence is needed. The opposing party then has time to respond to the motion to compel. The motion is then set for a telephone hearing with the chairperson (and sometimes the entire panel of arbitrators) and is ruled upon. The arbitrators have the power to order sanctions if one of the parties refuses to cooperate in discovery.

The Final Hearing

Once discovery is complete, it is time for the in-person hearings. This is when each party presents its evidence to the arbitrators. There are generally two types of witnesses: fact witnesses and expert witnesses. Fact witnesses, who are usually the Claimant, the broker and the broker’s supervisors, testify as to facts related to the matter, but do not give their opinions. Expert witnesses have more specialized knowledge about brokerage firm regulations and rules which enable them to interpret and express their opinions about the facts of a case. 

If the hearing is in person, the arbitrators sit at the head of the table, and claimants and respondents sit with their attorneys on opposite sides. The witnesses sit closer to the arbitrators. Once the parties and attorneys are ready, the chairperson will call the hearing to order. The arbitrators will identify themselves, and ask for an introduction to everyone in attendance. The chair will then swear in all of the parties and witnesses in attendance who will testify, since their testimony is under oath. The claimant’s attorney will then make an opening statement, which will be followed by a statement from the respondent’s side. These statements provide a brief snapshot as the issues raised and will describe what the party will try to prove. After the opening statement, the claimants present evidence, which is done through witness testimony and documents. The other side has the opportunity to cross-examine any witness who testifies. The arbitrators are also allowed to ask the  witness questions. After the claimant’s lawyer has  completed presenting the case, the  respondent’s lawyer  may present their defense. Parties are allowed to object to any evidence being presented before the arbitrators receive it and the arbitrators will decide if they will accept it. Although the hearings are private in nature, they are digitally-recorded, usually on a device operated by the arbitrators. The parties can also bring in a court reporter to be present at the hearing. Finally, after all of the parties have finished presenting their witnesses and evidence, they make their closing arguments. The closing argument is an opportunity to summarize what has been established at the hearing. Either side is allowed to  rebut the other side’s closing arguments.  Pursuant to the FINRA hearing script  the arbitrator’s will ask “Do the parties have any other issues or objections that you would like to raise that you have not previously raised?” If the answer is no, the hearing will be completed.

An Award Is Made

After the hearing, the arbitrators will go into a private session to consider the evidence and make a decision on the case—which is called an “award.”  Usually, this is done 30 days after completion of the hearing. All three of the arbitrators have an equal vote, with the majority deciding the outcome. Most FINRA awards are unanimous decisions. The awards contain a decision on the claims presented by the parties, and will also decide how to allocate FINRA forum fees as well as other things like interest or attorney’s fees if requested. The awards generally do not contain the reason behind the decision to award or not award money, unless both parties request an explained decision prior to the hearing. Once the  award is issued,  it is legally binding and final unless there is a court challenge, which can only be made on very limited grounds. There is no internal “appeals” process at FINRA. If the award contains a requirement that the brokerage firm pay money, or to take any action—then the respondent firm must comply and make the payment within 30 days or risk having their license affected. 

Protect Yourself – Get an Investor Fraud Lawyer to Represent You or Your Family 

If you or a loved one has been the victim of investment fraud or broker negligence, then you need an experienced, aggressive securities fraud attorney to zealously pursue your FINRA case. Since most brokerage firms have mandatory FINRA arbitration,  it is crucial to hire a lawyer who fully understands this area of law.  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 888-768-2499.