When you file a claim, the brokers—who directly finance FINRA—force the dispute into a FINRA operated arbitration rather than the court. Here's how this works:
Arbitration & Mediation with a fiancial professional
Mediation, is a form of alternative dispute resolution (ADR), a way of resolving disputes between two or more parties with concrete effects. Typically, a third party, the mediator, assists the parties to negotiate a settlement.
is a resolution technique in which a third party reviews the evidence in the case and imposes a decision that is legally binding for both sides and enforceable. Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. Arbitration is often used for the resolution of commercial disputes, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the amount of damages pay
Arbitration is a proceeding in which a dispute with a fiancial professional or stock broker is resolved by an impartial adjudicator
In theory, arbitration is a consensual process; a party cannot be forced to arbitrate a dispute unless he agrees to do so. In practice, however, many fine-print arbitration agreements are inserted in situations in which consumers have no bargaining power. Moreover, arbitration clauses are frequently placed within sealed users' manuals within products, in the case of brokerage accounts you will find them in your account agreement with your broker. Arbitration clauses in contracts between broker-dealers and investors have been the norm for more than 20 yearsFinancial institutions across the country are required to be members of the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization. FINRA has jurisdiction and authority to supervise and discipline firms that violate its SEC approved rules. Financial institutions across the country are required to be members of the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization.
Arbitration with a fiancial professional starts when a wronged customer files a claim specifies the relevant facts and remedies requested
The arbitration process begins with a party filing a Statement of Claim with FINRA. A customer who files a Statement of Claim is called a claimant. The party against whom the Statement of Claim is filed is called the respondent. The Statement of Claim should provide the details of the dispute, including relevant dates, names of entities and individuals involved, and the type of relief requested and the respondents from whom the claimant is seeking relief or damages. The type of relief a claimant may request, includes, but is not limited to, actual monetary damages, interest, and specific performance.
In addition to the Statement of Claim, a claimant must also file a Submission Agreement and pay the appropriate filing fees, either by check or online.
Arbitrator selection is the process in which the parties receive lists of potential arbitrators and select the panel to hear their case
FINRA uses the Neutral List Selection System (NLSS) to generate randomly lists of arbitrators from FINRA's arbitrator rosters to appoint a panel. Generally, the arbitrator selection process begins after the answer is due, regardless of whether the respondent answers a claim. After the answer is due, FINRA will use the NLSS to generate list(s) of arbitrators, which will include their background information, called arbitrator disclosure reports. FINRA will send the lists and arbitrator disclosure reports to the parties for their review. Parties will review the information, strike any arbitrators from the lists that they do not want on their panel, and rank the remaining choices. After parties have ranked their choices, they submit their ranked lists to FINRA. FINRA combines the parties' ranked lists and appoints the highest ranked available arbitrator from each list to serve on the panel.
Claims of investment losses by stock broker of more than $100,000 FINRA will appoint three arbitrators
For claims of more than $100,000 or for unspecified or non-monetary claims, the parties will select and FINRA will appoint three arbitrators. In investor cases decided by three arbitrators, investors have the option of choosing an arbitration panel with two public arbitrators and one non-public arbitrator, referred to as a Majority-Public Panel, or a panel of all public arbitrators, referred to as an Optional All-Public Panel.
In these cases, only investors choose the panel selection method. Neither brokerage firms nor brokers choose the selection method. If the investor declines to elect a panel selection method, the option for selecting a Majority Public Panel will apply. The investor option of choosing the type of arbitration panel applies to all investor cases decided by three arbitrators, but not to cases involving only industry parties
Elements of a Hearing with broker over stock losses
During the arbitration hearing, a claimant seeks to prove the claims that are alleged in the Statement of Claim, and respondents try to establish any defenses to those claims and seek to prove any counterclaims.
Arbitrators usually accept two types of proof: oral testimony by witnesses and documentary evidence. Parties are required to inform the other party or parties of witnesses they intend to call and provide copies of any documents or other materials that they plan to use at the hearing as evidence. Also, parties need to arrange for witnesses and all documentary evidence to be available for presentation at the hearing. Witnesses will testify under oath.
At the hearing, all parties will be present in the room with the arbitrators. The arbitrators open the hearing by reading from a script prepared by FINRA to cover administrative matters. Each party then has the option to give an opening statement outlining what it intends to prove during the hearing.
Arbitration Award against a stock broker or fiancial professional
The arbitration panel considers all of the evidence, deliberates together, and decides what relief the claimant is entitled to, if any
In an award, the panel will decide whether to assess any costs and forum fees against any party, and how to allocate those costs and fees among the parties.
Once the award is signed by a majority of the arbitrators, FINRA will send copies of the signed award to each party or representative of the party. FINRA makes all arbitration awards publicly available for free by posting them on Arbitration Awards Online.
An award will contain the following information:
Names of the parties;
Names of the parties' representatives, if any;
An acknowledgement by the arbitrators that they have each read the pleadings and other materials filed by the parties;
A summary of the issues, including the type(s) of any security or product in controversy;
Damages and other relief requested;
Additional resources provided by the author
Howard Roitman, Esq.
8921 W. Shara Ave
Las Vegas, Nevada 89117