FINRA ARBITRATION FAQ

Virtually all investor claims are decided in arbitration rather than court because brokerage firms require their customers to sign agreements stating that the customer waives the right to go to court and, instead, agrees to arbitrate all disputes. The arbitrations are filed with the dispute resolution arm of the Financial Industry Regulatory Authority, commonly referred to as FINRA. FINRA is the securities industry self-regulating organization. FINRA has many functions including regulating and licensing brokerage firms and stockbroker / financial advisors along with operating FINRA Dispute Resolution.

In FINRA arbitrations, a panel of one or three arbitrators, rather than a judge or jury, decides each case. The arbitrators are sworn to decide cases in an impartial unbiased matter. The arbitrators hear the testimony of witnesses, review the account statements and other important documents submitted into evidence by the parties, and listen to the arguments of the attorneys, much like a judge or jury. Unlike courtroom trials which can take place in imposing and ornate courtrooms, FINRA arbitrations usually occur in a less formal conference room setting.

Arbitrations are usually less expensive and proceed more quickly than court cases. Court cases often involve discovery depositions, which can be quite expensive due to travel and court reporter costs. Also, court cases often involve extensive procedural, technical, and dispositive motions that delay and add costs to a case. By contrast, FINRA rules do not allow for depositions except in rare circumstances and prohibit most types of motions.

Typically, it takes ten to fourteen months for a FINRA arbitration to be completed, while most court cases can take up to two years or more. Unlike trial court decisions which can be appealed as a matter of right, FINRA arbitration decisions are generally final and binding when rendered as there are very limited and narrow grounds for attempting to overturn an arbitration award.

To start a FINRA arbitration, the lawyer for the investor (referred to as the claimant in the arbitration) files a “statement of claim” with FINRA. The statement of claim is similar to a complaint that is filed in court, and typically contains a brief summary of what the claimant says that the brokerage firm and/or stockbroker/financial advisor did wrong, a summary of the legal theories upon which the claimant hopes to base a recovery, and a demand for damages. FINRA then serves a copy of the statement of claim on the brokerage firm and or stockbroker / financial advisor (referred to as the respondent(s) in the arbitration). Respondent(s) then file a statement of answer which usually denies responsibility for the conduct and losses described in the statement of claim.

About 90 days after the filing of the Statement of Claim, the attorneys for both sides receive a list of approximately 30 potential arbitrators along with some limited biographical and background information for each arbitrator. Each side ranks the names on the list and is also allowed to strike several names off of the list. Based upon the rankings and strikes from each party’s list, a computer at FINRA generates a panel consisting of the three arbitrators with the highest joint rankings from the two parties. Once the panel is selected an Initial Prehearing Conference (IPHC) is scheduled. The IPHC is a telephone conference between the arbitrators and the attorneys for the parties where the dates for the live hearing that will decide the claims are agreed upon.

To prepare for the live hearing, the parties exchange pertinent documents and information needed to present, argue, and decide the case in a process known as discovery. Among other documents, the claimant must typically provide several years of tax returns and records from other investment accounts to the respondents.

Twenty days before the hearing begins, each side must inform the other side who they will call as witnesses and what documents they intend to use evidence at the hearing.

The arbitration hearing itself takes place in a conference in a hotel or office suite, or at FINRA’s offices, usually in the city where the claimant lives. The hearing begins with opening statements by each side, which are presentations by each lawyer previewing the evidence they intend to present at the hearing. The parties then present the evidence to the panel through the direct testimony and cross-examination of witnesses and the introduction into evidence of the relevant documents through the testimony of the witnesses. The claimant puts on his / her case first, followed by respondent(s). Throughout the proceedings the arbitrators are free to ask the witnesses questions as well. After all the evidence has been presented by both parties, the lawyers each give closing arguments summarizing the evidence and arguing why their clients should win the case.

The arbitration panel usually issues a written award within a week or two of the conclusion of the hearing. Respondent(s) then have 30 days to pay any award rendered against them.

A high percentage of FINRA arbitration cases end up settling prior to the hearing. If settlement negotiations do take place, the attorneys at West & West are extremely experienced in such negotiations and will provide you with their full advice and counsel in deciding how to respond to settlement offers.

West, Edwards & Associates, LLC will provide you with a free, no obligation case evaluation. Then, if they believe you have a viable claim, they will handle most cases on a contingency basis, which means that they only get paid if you get paid through either a settlement or a favorable arbitration award. Their fee is typically based on a percentage of the amount recovered.