A FINRA arbitration involves a dispute between an investor and a financial advisor or brokerage firm. To initiate the process, an investor files a Statement of Claim with FINRA detailing their argument and what damages they seek. Then, the parties select arbitrators to hear their case. Investors should hire an experienced FINRA attorney to guide them.
What is FINRA Arbitration?
In FINRA arbitration, investors and brokerage firms select impartial arbitrators to decide their disputes. The arbitrators hear each side’s evidence and arguments, call witnesses, and decide. The decision is binding on all parties. Investors have six years from the alleged act or event that gave rise to their claim to file a FINRA arbitration. The arbitrators will follow FINRA’s Code of Arbitration Procedure, much like rules of civil procedure govern court cases. The arbitrators order parties to cooperate with the voluntary exchange of documents and information, called discovery, before the hearing. FINRA’s discovery guide lists the types of copies to be requested from both firms, associated persons, and customers. Parties can request a waiver of FINRA discovery fees but must show financial hardship to qualify for the release. For example, parties can submit tax returns, bank records, and pay stubs to prove their financial hardship.
How Does FINRA Arbitration Work?
In a FINRA arbitration, an arbitrator hears both sides of the story and issues a final binding decision. The process is faster and less formal than a trial in court. It also avoids many of the procedural and discovery requirements that often bogged down cases filed in court. Investors file a Statement of Claim describing their wrongdoing and the damages they seek. The brokerage firm or financial professional then files a Statement of Answer detailing various defenses and a response to the claim. The parties then select one or three arbitrators to serve on the case through a ranking and striking process. If both parties do not submit their arbitrator rankings, FINRA will provide a list with two public arbitrators and one non-public arbitrator (if the claim is more than $100,000). The panel then conducts the hearing. During the hearing, the committee will review all pleadings, listen to witnesses and arguments, and decide.
How Can I File a FINRA Arbitration Claim?
FINRA arbitration is the preferred method for individuals to resolve disputes with their brokerage firm and financial advisors. The agreements that investors sign with their broker-dealers and securities professionals (often called registered representatives) include mandatory arbitration of any dispute involving money damages. Investors file a Statement of Claim with FINRA, outlining their argument and seeking damages. They must name all relevant parties and provide contact information for each, including their address, phone number, and email. Typically, a claimant will hire a lawyer to assist them in preparing their case for hearing. The Dispute Resolution Department assigns a case number and a schedule to the claim, establishing essential deadlines for filing motions and discovery requests. The schedule also identifies the date and time of the hearing, or “trial,” and lists witnesses who must appear in person to testify. During the hearing, both sides present evidence and make closing arguments.
Who Can I File a FINRA Arbitration Claim With?
If you’re an investor, you can file a FINRA arbitration claim if the brokerage firm or securities professional you dealt with signed a contract that included binding arbitration and waived your right to sue in court. You can also file a claim if you were the victim of fraud, breach of fiduciary duty, unjust enrichment, or unauthorized trading. Once you file a Statement of Claim, FINRA sends the same document to the person or firm against whom you filed the complaint (called the respondent). The Statement of Claim must include the details of the dispute and describe the type of relief you seek. If you have a claim of more than $100,000, FINRA will randomly generate three lists with ten arbitrators each and provide them to both parties. You and your lawyer can strike arbitrators from the list and rank the remaining ones in order of preference.
What Can I Expect from FINRA Arbitration?
When you signed your brokerage account agreement, you agreed to resolve any disputes with your broker or their firm through FINRA arbitration rather than a lawsuit in court. Suppose you’re seeking financial recovery for unsuitable investments, misrepresentations or omissions, unauthorized trading, or any other securities-related dispute. In that case, you can expect the FINRA arbitration process to be more efficient and cost-effective than going to trial. The discovery process is streamlined, and you’ll be allowed to request documents that are relevant to your claim. A court trial has a more formal setting than a hearing, although both have opening speeches, witness testimony, and closing arguments. The arbitrators who hear your case will decide if you’re entitled to relief and, if so, how much. They also can file counterclaims, cross-claims, and third-party claims in your case.
How Long Will My FINRA Arbitration Case Take?
Most brokerage firms embed arbitration clauses into the customer agreements that investors sign when opening an account. These clauses mandate that any dispute with a firm must be arbitrated rather than taken to court. Once a claim is filed, a respondent will have a set amount of time to answer it and provide details about their involvement in the incident. In most cases, the respondent will deny your allegations that the broker committed wrongdoing and that you suffered damages due to the alleged conduct. FINRA then provides the parties with a list of potential arbitrators. Each party can strike several arbitrators from the list, and a panel is assembled based on the remaining candidates. After the list is compiled, an initial prehearing conference will be scheduled. The panel will set important discovery, briefing, and motion deadlines at the meeting and provide a roadmap for how your case will proceed.
