Many investors believe that their investment account has gone down due to stockmarket turmoil. However, it is sometimes the fault of their stockbroker for having invested them in the wrong type portfolio. There is a mechanism for recovering stockmarket losses. I have set that process below.
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The Arbitration Clause
At first glance, some investors may not notice the arbitration clause in their new account form. All brokerage firms insist that this form be signed before they will accept an investor as a client, and this has important ramifications. Foremost, among these is the limitation of available avenues of recourse to the dissatisfied investor. Indeed, since few if any brokerage firms will allow potential investors to forgo this important clause, the disgruntled investor is effectively prevented from bringing a court action to recoup losses. Currently then, the overwhelming majority of actions brought against brokerage firms are NASD Dispute Resolution (now know also as FINRA). In this article, we will focus on the NASD arbitration process.
2
Initiating the Arbitration Process
Prior to initiating the arbitration proceeding, the claimant should request an arbitration package from the NASD either by telephoning the NASD at (212) 858-4400 or by downloading the package at the NASD website at www.nasdadr.com. The claimant should then sign the Uniform Submission Agreement form included in the arbitration package and return it with the Statement of Claim and required filing fees. By signing this document, the claimant in essence agrees to abide by the rules of the NASD regarding the arbitration process.
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Filing the Statement of Claim
A claimant (the person who is bringing the action against the stockbroker) files a Statement of Claim with the NASD. The Statement of Claim should include the name and address of both the claimant and the respondent (i.e. stockbroker or brokerage firm), as well as the claimant’’s brokerage account number, a description of the allegations, and the claimed monetary losses. The NASD will then serve the Statement of Claim on the respondent. The brokerage firm and stockbroker are then given 45 days to file a response. In their response, they may bring counterclaims against the claimant, and file cross-claims if there is someone else that the brokerage firm feels may have contributed to the claimant’’s damages.
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Costs of Filing an Arbitration
The cost to file an arbitration depends upon the amount of money the claimant is seeking in damages. The initial fees range from $25 to more than $2,000. In addition, following the completion of the arbitration, the arbitrators will assess additional hearing session fees against the claimant, respondent or both. In cases where the arbitrator rules favorably for the claimant, they will generally assess the additional fees against the respondent. The reverse also hold true if they rule favorably for the respondent.
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Selecting the Arbitrators
If the amount of money in dispute is $25,000 or less, then the arbitration is considered a "simplified arbitration" and one arbitrator is appointed to hear the controversy. If the amount of money in dispute is $25,001 to $50,000, then one arbitrator is selected unless the parties request a panel of three arbitrators. For all controversies involving more than $50,000, three arbitrators will be appointed. Shortly after the formal response of the respondents, the NASD will send both parties a list of arbitrators from which they may select. When a three-member arbitration panel is necessary, the NASD will provide a list of ten public arbitrators and five brokerage industry arbitrators. When the arbitration panel will consist of one arbitrator, then the NASD will give both parties a list of five public arbitrators to choose from. The NASD will also include resumes of the arbitrators and a list of the arbitration awards they have previously rendered. Both parties are given the opportunity to
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