What Happens During an Arbitration Hearing?
All customer complaints against brokerage firms are subject to mandatory
binding arbitration through the Financial Industry Regulatory Authority,
or FINRA. This means that a customer dispute is decided not by a judge
or a jury, but by a panel of arbitrators trained and appointed by FINRA
to decide customer cases. While many of our law firm’s cases settle
prior to an arbitration hearing, sometimes the parties are not able to
agree to a resolution. When that happens, the parties present their cases
to the arbitrators and let the arbitrators make a final decision.
While an arbitration hearing is less formal than a court proceeding, the
process itself very much resembles a trial that you’ve seen before
on TV. Since the cases are not filed in court and not decided by a judge
or a jury, they are not conducted in a courthouse. Rather, the final hearings
are conducted in a conference room setting. Even though the hearing setting
is less formal than a court setting, don’t be fooled by the informal
setting. The decision that the arbitrators make following the final hearing
is binding on all parties and the grounds to appeal a FINRA arbitration
ruling are extremely narrow.
OK, so let’s talk about the hearing itself. All the parties, their
counsel and the arbitrators are gathered in the conference room. The lawyers
for the parties have all of their exhibits and other material they intend
to provide to the arbitration panel.
The arbitration hearing begins with the lawyers for each side making opening
statements to the arbitrators. Opening statements are intended to give
the lawyers for the parties the opportunity to summarize their client’s
case and what they intend to prove at the hearing. After opening statements,
the customer puts on what is called its case-in-chief, during which time
the customer’s lawyer calls witnesses to testify under oath in response
to questions under direct examination, followed by the opportunity for
the brokerage firm’s lawyer to ask questions of the witnesses under
Once the customer rests their case, then the roles reverse and it is now
the brokerage firm’s opportunity to present its case. As before,
witnesses are called and subject to both direct examination and cross
examination under oath. Typical witnesses in a securities arbitration
case include the customer, the broker who advised the customer, the broker’s
supervisors, and expert witnesses who are retained by the parties and
who may provide testimony about damages calculations and rules or standards
of practice in the securities industry. Most of our law firm’s arbitration
hearings last about three or four days, but some more complex cases may
last longer. Throughout the arbitration hearing, the parties may object
to particular evidence or lines of questioning and the arbitrators must
decide whether to sustain or overrule the objections. While the formal
rules of evidence do not technically apply in FINRA arbitration hearings,
most arbitrators are lawyers and they tend to rely on the rules of evidence
as a guide when evidentiary disputes arise.
Once the parties have finished presenting their evidence, each side is
then provided the opportunity to make closing arguments to the arbitration
panel. During closing arguments, the lawyers summarize the evidence that
was presented and provide their arguments as to why the evidence supports
their case and why the arbitrators should rule in their party’s favor.
After the hearing is over, the arbitrators meet privately to review the
evidence and make their final decision. Under FINRA’s rules, the
arbitrators must issue their decision within 30 days of the final hearing
date. Importantly, the final arbitration decision is binding; although
there are procedures to get an arbitration award overturned in court,
the grounds for doing so are very narrow and courts rarely grant such requests.
Presenting a persuasive case to a FINRA arbitration panel involves tremendous
amounts of preparation, strategy, research and expertise. If you have
questions about the securities arbitration process,
please contact one of our experienced securities arbitration lawyers today.