FAQs on FINRA Arbitration

Below are some of the basics that every investor should know about the securities arbitration process. For specific advice about your situation, contact a Dimond Kaplan & Rothstein lawyer at 888-578-6255.

What is arbitration?

Arbitration is a private form of dispute resolution that is meant to be faster and more efficient than state or federal court litigation.

Do I need to take my stockbroker liability claim to arbitration?

Almost certainly. Brokers and brokerage firms routinely require investors to sign agreements that contain clauses that make arbitration the exclusive forum for disputes between the investor and the stockbroker or brokerage firm. In other words, you typically cannot pursue your claims in court to recover your investment losses.

Who decides securities arbitration cases?

Most arbitration claims are administered by FINRA  –  the Financial Industry Regulatory Authority. If your case involves more than $100,000, it will be heard by three arbitrators, usually are lawyers, accountants, retired judges, or business owners, who review evidence and decide your case. Smaller claims will be decided by a single arbitrator. There is no judge or jury.

How does arbitration work?

An arbitration proceeding is initiated by filing a Statement of Claim on behalf of the investor, known as the “claimant.” The broker or brokerage firm, known as the “respondent,” then files an Answer, telling its side of the story.

Each side then obtains documents from the other in the discovery process. The documents disclosed by the brokerage firm often reveal information about the broker’s disciplinary record, the brokerage firm’s supervisory activity over the broker, research reports about the investments at issue, and other information that can help establish your claim. Importantly, there generally are no time-consuming and expensive depositions.

The trial of an arbitration case is known as a final hearing and often lasts three to five days. Witness testimony and documentary evidence is presented to the arbitrators, and the lawyers argue about the conclusions to be drawn from the evidence.

Can my case settle prior to the final hearing?

Yes. Although we cannot predict the outcome of any given claim against a stockbroker or brokerage firm, many claims are settled prior to the final hearing.

Many cases settle through a voluntary settlement conference known as mediation. In mediation, a neutral mediator approved by both the investor and the brokerage firm facilitates settlement discussions, but does not rule on disputed issues or make any binding decisions.

Mediated settlements often are the most reasonable path to a satisfactory outcome of your claims. Parties in mediation have the ability to control their own fate rather than have the result dictated by the arbitrators. A settlement saves costs, eliminates risk, prevents aggravation, and allows both parties to go on with other important business that would otherwise be delayed. Even when mediation does not result in a settlement, parties generally learn something more about the strengths and weaknesses about their cases and that of their opponents.

Where does the arbitration take place?

Final hearings generally take place at a FINRA-designated location near the investor’s residence. Because final hearings can take place in about 50 cities throughout the United States, as well as in London and Puerto Rico, investors seldom need to travel a long distances for their cases.

What are some of the important differences between arbitration and court proceedings?

There are some significant differences between arbitration and court, one of the most important of which is the final nature of an arbitration decision. Unlike court cases, which permit you to appeal decisions made by a judge or jury, arbitration awards generally are final. The law provides very few ways to overturn arbitrators’ rulings. Arbitration also is private and closed to the public, as compared to open-to-the-public court proceedings.

In addition, there are fewer procedural rules in arbitration, including the general lack of depositions. The lack of procedural burdens makes arbitration faster and less expensive than court. The lack of certain procedural rules, such as motions for summary judgment and most motions to dismiss, also provides fewer opportunities for brokerage firms to defeat your claim before you have the opportunity to present evidence to the arbitrators. In contrast, defendants in court have far more opportunities to win and prevent the plaintiff from taking a case to trial.

How does my lawyer get paid?

At Dimond Kaplan & Rothstein, all initial consultations on stockbroker and brokerage firm liability claims are free of charge. We accept most cases on a contingency-fee basis, which means that we do not get paid unless and until we recover money for you. When we do get paid, our fee is a percentage of the money that we recover for you. While we generally prefer to align our interests with our clients by working on a contingency-fee basis, if clients prefer, we will consider handling stockbroker and brokerage firm misconduct cases on an hourly basis or on a hybrid of a reduced hourly fee and a reduced contingency fee.

To learn more about our experience with securities arbitration, contact one of our attorneys at 888-578-6255.