Most securities claims are decided by FINRA (the Financial Industry Regulatory Authority) arbitrations. FINRA operates the largest dispute resolution forum in the securities industry to assist in the resolution of monetary and business disputes between and among investors, brokerage firms, and individual brokers. An experienced securities lawyer is critical to navigating the FINRA securities arbitration process. If you have any investment related claim, do not hesitate to contact one of our attorneys.
Securities arbitration is a formal dispute resolution process where the parties select neutral third party to review the evidence and decide the case. The arbitration process provides significant advantages for an investor because the process is usually less costly and time consuming than a traditional lawsuit and parties reach a resolution more quickly. Below is a brief description of how a securities arbitration progresses.
The first step in the arbitration process is filing a Statement of Claim. A person bringing a securities action is called a “Claimant.” The Claimant files a Statement of Claim, which includes a description of the dispute, the parties involved, and the amount of money the Claimant seeks. Unlike a “Complaint” filed in a traditional lawsuit, the Statement of Claim is more detailed and comprehensive, and includes significant factual detail. This is the opportunity for you to tell your side of the story and provide documents supporting your claim.
Once FINRA has received the Statement of Claim and the necessary fees, FINRA will review the claim, determine the number of arbitrators required to hear your case, and review the nature of the dispute and type of securities involved. FINRA then assigns a case number.
A brief note about location: The arbitration hearing will typically take place at the location nearest to where the Claimant lived at the time of the original dispute, unless the parties agree on a different location. In Florida, there are FINRA dispute resolution offices in Tampa, Orlando, Miami, Boca Raton, and Jacksonville.
The party defending a securities arbitration dispute is called the Respondent. After examining the Statement of Claim, FINRA notifies each Respondent a packet by mail that includes the Statement of Claim, FINRA’s rules, and a FINRA Submission Agreement.
A Respondent has 45 days to answer the Statement of Claim. The answer usually outlines the defenses Respondent plans to argue and documents supporting their argument. Once FINRA receives the answer, FINRA examines it to see if the Respondent has filed a claim against the Claimant (this is called a counterclaim) or a claim against another Respondent (this is called a cross claim).
In a traditional lawsuit, a jury is selected for the trial in a process called voir dire. In the FINRA arbitration process, the parties get to select their arbitrators in advance. FINRA provides each party with an identical list of potential arbitrators. The list contains a disclosure report, which is a detailed information sheet about each arbitrator’s background including education, training, and history of arbitration awards (or decisions). Each party then reviews the disclosure report and ranks the arbitrators in order of preference. Each party can also strike some of the arbitrators from consideration entirely.
There are two types of arbitrators, ones who have a connection to the securities industry (non-public arbitrators) and those who have no connection to the securities industry (public arbitrators). Arbitrators take an oath to remain neutral and must decide the case based on the facts and merits of the case.
Once the arbitrators are selected, there will be a pre-hearing conference conducted telephonically. The arbitrators and the attorneys from each party discuss important deadlines, set the final arbitration hearing dates, and other procedural issues.
Discovery is the process where each party exchanges information and identifies their witnesses. The exchange of information usually occurs within 60 days of the Respondent’s Answer. Each party must comply with the FINRA Discovery Guide. In addition, each party can request documents relevant to the claims in the Statement of Claim.
The Arbitration Hearing is similar to a traditional trial, but less formal. Just like a traditional trial, each party is given an opportunity to make an opening statement, present their evidence, and make closing arguments. Unlike a trial, however, arbitrators do not need to rule in favor of either party. Arbitrators are typically given 30 days to make a decision in the case.
Each arbitrator has an equal vote in making the decision, with a majority deciding the case. When the arbitrators render an award, they also decide the allocation of FINRA forum fees. The award is legally binding and final unless there is a court challenge. If the Respondent is required to pay money to the Claimant, the Respondent must pay within 30 days or they risk suspension from FINRA. Typically, the arbitration award is confirmed in state court and converted into a judgment by a court.
A party can appeal an arbitration decision by making a motion to vacate or a request to have the court set aside the award. Appeals are rarely successful, and are generally limited to one of two events occur: when an arbitrator commits fraud or manifestly disregards the law. These circumstances are extremely rare.
To view the regulatory history of your financial advisor, conduct a BrokerCheck at FINRA’s website.
In addition, FINRA offers a video of what investors can expect in the arbitration process. The video can be viewed HERE.
FINRA has provided a list of common investor problems and tips on how to avoid those problems. Investor Best Practices