Virtually all broker-dealer firms require customers to arbitrate claims they may have against the firm and the brokers they employ.  As a result of key Supreme Court decisions during the 1980s, including the pivotal  case of Shearson/American Express Inc. v. McMahon,   482 U.S. 220, 242 (1987),   brokerage firms can require customers to arbitrate future disputes that may arise pursuant to arbitration clauses included within  the firm’s typical customer account agreements.

Pros and Cons

The stated goals of FINRA arbitration are to provide a fair, relatively expedient method of resolving disputes. Yet, there are upsides and downsides to arbitration. Among the upsides are the speed within which a case can be resolved and the confidentiality from public viewing that is  afforded to the participants. Most if not all of our clients find the private nature of securities arbitration to be a tremendous relief to them. For instance, an investor’s claim and other pleadings in FINRA are not made public – unlike the situation in court cases.  An investor’s testimony remains private, also in contrast to court procedure. Bystanders including the press or your neighbors or your business colleagues cannot retrieve your arbitration files, whereas in court such materials are routinely available in the courthouse or online to anyone who wishes to search. Among the downsides are some limitations on discovery, such as no allowance for depositions before the hearing (this can also be a cost saving upside).  On balance, FINRA arbitration can be the optimum forum when counsel experienced in the field works hard for you.

 In 2013, FINRA’s arbitration rules were revised to provide that public customers/investors can demand an all public arbitration panel. An ‘all public’ panel is one that is comprised entirely of arbitrators from the public arena, and that disallows arbitrators from the securities industry.  Prior to this positive change, a customer’s ability to select an all public panel was dependent upon the size of one’s case and other variables.

The FINRA Arbitration Process 

Even though arbitration may seem informal to the untrained eye, preparation for and attendance at an arbitration demands intensive attention to strategy, a thorough knowledge of securities regulations at issue, and ideally an understanding of the inner workings within brokerage firms.  But, the process of course begins with you, the investor, describing your situation to your lawyer. Our law firm works extensively with clients throughout this stage.   We believe it is crucial to obtain as much information, and insight, from our clients – from the very outset.   Ultimately, the client, or his proxy, must be able to tell his story in a simple way.  We draft the Statement of Claim by working closely with the client.

Once the Statement of Claim is   finalized, arbitration is commenced by filing of the document with FINRA. The importance of this document cannot be overstated. We take great care to prepare a Statement of Claim that best represents your unique situation,  advances relevant strategies, anticipates defense strategies, and raises the best arguments.   The brokerage firm/ broker then files an Answer to the Statement of Claim.  The parties then  engage in limited ‘discovery’ primarily through the  exchange of documents, including the production of specialized documentation from the brokerage firms.  In contrast to court proceedings, pre-hearing depositions of the parties or witnesses are not allowed.

Final Hearings can take a few days, or a full week or more, depending upon the number of parties, witnesses and  the complexity of the issues.  As noted above, public investors are now permitted to opt for an all public panel in all customer cases.  Further description of the FINRA arbitration process can be found at http://www.finra.org/ArbitrationAndMediation/Arbitration/Overview/index.htm.

Experienced counsel is needed to best anticipate, evaluate and address the range of industry strategies/defenses that can emerge at any time throughout the case. Time can be of the essence in bringing your claim If you would like further information, or have concerns about the conduct of  your broker/advisor, please contact me directly for a free consultation.