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FINRA Securities Arbitration for Investment Disputes

Posted by attorney W Greco

Arbitration is a means of resolving disputes between parties outside of court. In binding arbitration, the parties present evidence to an arbitrator or a panel of arbitrators and agree to abide by the decision of the arbitrator(s) regarding the dispute. Ideally, settling disputes by arbitration is faster and less complicated and time-consuming than going to court. As follows are some common questions many investors have about arbitration:

A. Do I have to submit my claims against a broker or brokerage firm to arbitration? Most brokerage firms and financial advisors have a mandatory arbitration provision included in their new account agreements. If you signed the new account agreement and do not have a defense to the enforceability of the agreement, you more than likely have to arbitrate any claims you may have arising out of the agreement. Should you file a claim in court anyway, the brokerage firm may request the court to send your case to arbitration.

If your dispute is with a FINRA brokerage firm (Broker-Dealer) or broker (registered representative), you most likely will have to arbitrate through FINRA’s Dispute Resolution system. Additionally, FINRA Rules require member brokerage firms to arbitrate disputes with customers on the request of the customer if certain requirements are met (FINRA Rule 12200).

Mandatory arbitration clauses with registered investment advisors may require AAA arbitration, FINRA arbitration, or arbitration in another forum.

B. What are some advantages and disadvantages to arbitration? The amount of pre-trial discovery of information is more limited in arbitration. For example, depositions, which can be costly and time-consuming, are generally not allowed in arbitration except in certain circumstances. Interrogatories and Requests for Admission are also not allowed by FINRA Rules. This can be an advantage or a disadvantage depending on whether you need additional information from the opposing side to make your case stronger. The rules of evidence in arbitrations are often more relaxed than in court. This allows parties to put in testimony and documentation that may not normally be admissible in court. Once again, this can be an advantage or a disadvantage. Arbitrations also offer very little rights of appeal. Once the award is made, the losing party has a very difficult burden if he/she wants to attempt to overturn that award.

C. Who makes the final decision in arbitration? Unlike in court, arbitrations are not decided by either judges or juries. As a result of a recent change in the FINRA arbitration rules, customers may now request that their arbitration panel be composed of three public arbitrators. (Previously, one industry arbitrator was mandatory for three arbitrator panels). FINRA public arbitrators will often be attorneys or other local business persons. Three arbitrator panels are required by FINRA for claims over $100,000.00. After hearing the evidence and arguments in a case, the three arbitrators will announce their decision by filing a written award.

D. Do I need a lawyer for arbitration? Although you are not required to be represented by a lawyer in arbitration, it is always advisable to have one. Brokerage firms will always be represented by a lawyer at the hearing and an investor representing himself/herself may not present all of the relevant evidence or arguments needed to win a case. Unlike in court, in almost all arbitration venues, your attorney does not have to be admitted to the bar of the state where the hearing takes place. Greco & Greco represents investors across the country and generally represents investors on a contingency fee basis so that clients do not have to pay any up-front attorneys fees.

E. Where are arbitration hearings held? FINRA has hearing locations for arbitrations in every state. They typically will hold the in-person arbitration hearing in the closest hearing location in the state of the customer’s residence during the time of the dispute.

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