When you opened your account at the brokerage firm, you may not have paid
a lot of attention to the mandatory arbitration provision in your paperwork.
Most investors don’t anticipate that they will end up pursuing a
claim against their broker for fraud or some other form of misconduct.
If you are considering filing a broker fraud claim, you need to understand
the components involved in securities arbitration before the Financial
Industry Regulatory Authority (FINRA).
The Initial Steps in FINRA Securities Arbitration
There is a lot that will transpire once you decide to pursue a claim for
misconduct or fraud. One of the first steps in recovering your financial
loss is to file a Statement of Claim with FINRA. This claim doesn’t
have to be overly complicated; in fact, there isn’t a specific format required.
For example, your Statement of Claim can be as simple as a letter setting
forth the details to support your claim against the broker or brokerage
firm. However, you do need to make sure that you state the facts of your
complaint, explain what the representative or brokerage firm did that
was improper and the amount of money to which you believe you are entitled
to recover as a result of the misconduct. It is helpful if you include
any documents that support your case. You will also need to complete a
Uniform Submission Agreement and Claim Information Form that will be submitted
with your Statement of Claim, along with the appropriate filing fees to FINRA.
Once all of this information is received by FINRA, the Statement of Claim
will be sent to each person or entity that has been named. These parties
have to file an answer within 45 days. At this point, they may file a
counterclaim in response to any allegations that were made against them.
If the parties named in the claim don’t respond, they could be prohibited
from “presenting any defenses or facts at the hearing,” according
to FINRA Customer Code 12308(a).
What Happens During the FINRA Arbitration Hearing
During the arbitration hearing, each side has the right to be heard and
to present testimony and evidence. The hearing will be held in a conference
room at a local FINRA office or in another designated location by FINRA.
All the parties will be together in the room with the arbitrators. The
claimant and the person or entity named in the claim will be allowed to
provide oral witness testimony and documentary evidence.
According to FINRA’s Customer Code 12514, the other party has to
be informed when a witness will be called to testify within 20 calendar
days prior to the hearing. Documents that will be used as evidence must
also be provided to the other party within this timeframe. After the cases
have been presented, each party has the chance to rebut the evidence.
Closing arguments are then made and the arbitration panel makes its decision.
FINRA arbitration occurs in lieu of going to court, meaning a judge will
not be hearing your case. Instead, there are one or three arbitrators
that make up the “panel,” which is charged with reviewing
the claim and listening to arguments made by both parties. The panel will
study the available evidence and determine the best manner in which the
dispute should be resolved.
The panel’s decision regarding a claim is referred to as an “award.”
It is crucial to understand that this award is considered to be final
and binding by all the parties involved. Challenging an arbitration award
can be done, but it is difficult to do and there are limited circumstances
in which you can do so. The time period to challenge the award is short.
According to the Federal Arbitration Act, you only have three months,
but in some states, the deadline could be less.
Since the arbitration decision is generally binding, you need to have a
strong case prepared and should consider involving an experienced securities