On December, 20, 2016, the SEC’s Office of Investor Education and Advocacy issued a bulletin explaining the process involved when a customer of a brokerage firm has a dispute with the firm.
The bulletin explained that if you’re involved in a dispute in the securities industry, it will generally be handled through arbitration rather than through litigation since most brokerage firm account opening agreements include a provision that requires both parties to agree to binding arbitration if a dispute ever comes up.
The following is a summary of the SEC’s bulletin to provide you with some basic information about what to expect during your arbitration case. We also invite you to explore the many articles,informational videos and blogs on our website to learn more about the FINRA arbitration process and how our lawyers may be able to help you recover losses suffered as a result of stockbroker misconduct.
How FINRA Arbitration Differs from a Lawsuit
While both offer a final and legally binding conclusion to a dispute, they have a few key differences, including:
- Arbitration is generally less expensive and takes a shorter amount of time to complete.
- The evidence gathering tools available during arbitration are more limited than those available in litigation.
- The documents submitted during arbitration are not available to the public, while they are in litigation.
- Arbitrators are not to follow legal precedent or state or federal rules regarding evidence. Instead, they must follow the Financial Industry Regulatory Authority’s (FINRA) Code of Arbitration Procedure.
- Arbitration decisions are legally binding, but the grounds for appeal are significantly more limited than the grounds for appeal after litigation which means that they are far less likely to be overturned.
- Instead of a judge like in litigation, the parties involved in litigation select either an individual arbitrator or panel of arbitrators to rule on their case.
For claims valued either at or below $50,000, they will be subject to the rules that govern simplified arbitrations in the FINRA forum. However, no hearings will be held in simplified arbitrations unless the customer requests a hearing – if a hearing isn’t requested, then the arbitrator will review a written description of the facts and relevant documents submitted by the parties involved. This process is generally a far cheaper alternative because none of the parties need to travel to attend a hearing or appear in person to answer questions or give testimony.
How Arbitrators Are Selected
For claims valued at or under $50,000, a single arbitrator will hear the case. In claims valued between $50,000 and $100,000, a single arbitrator will hear the case unless all parties give written approval to have the case heard by a panel made up of three arbitrators. In claims valued over $100,000 or where a party requests non-monetary damages or an unspecified sum of money, the panel will consist of three arbitrators unless all parties give written approval to have the case heard by a single arbitrator.
In most cases, a single arbitrator panel will consist of a public arbitrator – someone completely unaffiliated with the securities industry, both through professional services performed on behalf of the industry and through their employment – unless all parties give written approval to have the case heard by a non-public arbitrator. All parties involved will submit a list of potential arbitrators ranked in order of preference. The final choice and initial list of options will be decided and provided by FINRA’s Director of Arbitration.
For three-arbitrator panels, FINRA’s Director of Arbitration will provide the parties involved with three lists: public arbitrators who are eligible to act as the panel’s chairperson, a list of non-public arbitrators and a list of public arbitrators. The parties will then rank their choices in order of preference or completely strike a name from the list. The final panel will consist of two public arbitrators and one non-public arbitrator, unless all non-public names have been stricken – in that case, all three will be public arbitrators. If the parties’ lists aren’t submitted on time, then FINRA’s Director of Arbitration will assume that they have no preference and compile the panel from all available names.
The Arbitration Process
During the discovery process, the parties will exchange all relevant documents and gather the necessary information to prepare for an evidentiary hearing where the arbitrators and parties meet in person to present witness testimony, arguments and any evidence they have to support their case. At any point during this process, the parties can choose to settle their dispute even after this process begins.
Once the settlement is complete, broker-dealers are not allowed to restrict or prohibit an individual from communicating with any securities regulators, including FINRA and the Securities Exchange Commission (SEC) using the confidentiality provisions included in a settlement agreement. If the broker-dealer attempts to use a document like discovery stipulations in arbitration proceedings or confidentiality provisions in settlement agreements to restrict or prohibit anyone from communicating with these regulators, then FINRA may charge that broker-dealer with violating FINRA Rule 2010.
If a settlement cannot be reached, the arbitration panel will issue an award, usually within 30 days after the conclusion of the hearing. In cases where there’s a three-arbitrator panel, a majority of the arbitrators must agree on the award. Unless all parties request a written explanation for the award at least 20 days before the beginning of the arbitration hearing, no written explanation will be provided following the conclusion of the case.
FINRA Dispute Resolution
Most arbitration claims that involve customers are filed with FINRA’s Office of Dispute Resolution.
The Cost of Arbitration
The initial filing fee for a customer filing a complaint is generally between $225 and $4,000 depending on the amount in dispute, though the Director of Arbitration has the ability to defer part of or all of the filing fee if the customer can show suitable financial hardship. The fees for hearing sessions will be calculated based on the number of arbitrators and on the amount in dispute, and it is up to the arbitrators to determine how much of the fee each party is responsible for. The parties involved may also be responsible for other fees including administrative costs, explained decision fees, contested subpoena fees, discovery motion fees and adjournment fees.
At Meyer Wilson, our investment fraud attorneys have spent nearly two decades representing clients across the nation in order to provide them with the experienced legal representation they need to recover their lost funds. Fill out our online form to give us the details of your situation in a free case evaluation, or give us a call at one of our four office locations to speak with a member of our firm today. We handle all cases on a contingency fee basis, so you won’t owe any legal fees until we’re successfully recovered your losses.