General Overview of FINRA Securities Arbitration Claims

General Overview of FINRA Securities Arbitration Claims

Introduction

Investing in the stock market comes with its fair share of risks. Unfortunately, disputes between investors and their brokers or financial advisors are not uncommon. When these disputes cannot be resolved through negotiation or mediation, the parties turn to FINRA Securities Arbitration to seek resolution. In this article, I provide a general summary of FINRA Securities Arbitration claims, outlining what it is, how it works, and what public investors need to know.

What is FINRA?

The Financial Industry Regulatory Authority, or “FINRA”, is a non-governmental organization that acts as a self-regulatory body overseeing the securities industry in the United States. FINRA’s mission is to protect investors and maintain the integrity of the financial markets. It achieves this through its regulatory oversight, rulemaking, and enforcement.

What is Securities Arbitration?

Securities arbitration is a dispute resolution process that allows investors and financial industry professionals, such as brokers and financial advisors, to resolve their disputes outside of court. This process is an alternative to litigation and is generally more efficient and cost-effective. Most account agreements with broker-dealers and financial advisors will include terms mandating arbitration before FINRA in the event a dispute must be resolved.

How Does FINRA Securities Arbitration Work?

Filing a Claim: The arbitration process typically begins when an investor files a claim against a brokerage firm, broker, or financial advisor. The claim is made through the preparation and filing of a “Statement of Claim” setting forth the facts, legal theories and other matters culminating with a request for the arbitration panel to reach a desire resolution.

Arbitrator Selection: A panel of arbitrators is selected to hear the case. These arbitrators are typically experienced professionals with knowledge of the securities industry. It is vital to thoroughly vet the potential panelists. Experienced counsel plays a significant role in this vitally important process.

Arbitration Hearing: The parties involved present their evidence and arguments during a formal arbitration hearing. This process is less formal than a courtroom trial but follows specific rules and procedures. Most FINRA arbitration hearings last multiple days. The securities industry is highly regulated and its rules and regulations are complex. This type of arbitration is highly specialized and the broker-dealers and investment advisors almost always have experienced legal counsel (in-house or outside counsel) representing them at the hearing.

Award: Within 30 days following the conclusion of the arbitration hearing, the arbitration panel makes a decision and issues a written award, which is legally binding. This decision can include monetary damages, the return of investments, disgorgement of fees/commissions or other case specific remedies.

Key Considerations for Investors

Mandatory Arbitration: As noted above, most brokerage agreements include mandatory arbitration clauses, which require investors to resolve disputes through arbitration rather than in court. Investors should review these clauses carefully before opening an investment account.

Costs: Arbitration can still involve significant costs, including filing fees and legal representation. Investors should be aware of these potential expenses.

Timeframe: Arbitration cases often move more quickly than court cases, but the process can still take several months or even years to reach a resolution.

Legal Representation: While investors can represent themselves in arbitration, it is advisable to have knowledgeable and experienced securities litigation counsel.

Finality: Arbitration awards are typically final and can only be appealed on limited grounds, such as misconduct by the arbitrators or a clear violation of the law. This is a substantial difference from traditional litigation before a court of law.

Conclusion

FINRA Securities Arbitration provides investors with an alternative means of resolving disputes with brokers, brokerage firms, or financial advisors. While it offers benefits such as efficiency and expertise, investors should carefully consider the implications of mandatory arbitration clauses, potential costs, and the binding nature of arbitration awards. Seeking legal advice and understanding the arbitration process can help investors navigate these challenges effectively.