Arbitration enables two parties to reach a resolution without formal mediation. The process is not as formal or costly as a trial, and many advisor agreements include FINRA arbitration terms. The process typically includes up to three arbitrators who are chosen by the investors and advisors. An arbitrator plays a mediatory role. They read each side of the case, listen to arguments, explore the evidence, and offer an award or outcome. In FINRA arbitration proceedings, and most other arbitration proceedings, the award is a legally binding and final decision.
The parties can choose to take the decision to court to appeal if, the arbitrator(s) failed to uphold their legal duties, if it appeared they reached their decision because of duress, fraud, or corruption, or if their decision was completely irrational.
What Is FINRA
There are a number of different federal and state regulatory agencies that oversee the financial sector, but there are also number Self-Regulatory Organizations or SROs. These organizations are non-government agencies with the power to create and enforce industry regulations. The mission of these organizations is to establish a set of ethical laws to protect investors.
The largest and perhaps most powerful of these organization is the Financial Industry Regulatory Authority (FINRA). FINRA, like other SROs, is not connected to federal or state governments. It is an independent non-profit organization and its mission is to protect investors from the potentially fraudulent or dishonest practices finance professionals may commit. FINRA’s impartiality also promotes integrity throughout the stock market.
Many financial adviser agreements contain a clause that requires investors to use FINRA arbitration proceedings to resolve any disputes that may occur. While the arbitration process is not the same as a lawsuit, individuals often seek out the advice and representation of investment attorneys who specialize in FINRA arbitration.
Why FINRA Matters
FINRA understands how important it is to maintain trust between individual investors, financial professionals, the larger firms, the companies, and the banks for the stable working of the financial industry. They utilize a variety of tools to protect investors from unethical practices. In its work, FINRA protects not only individual investors but also the integrity of the market as a whole.
What FINRA Does
FINRA’s current oversight encompasses over 600,000 brokers and almost 4,000 firms nationwide. The organization assessed over $95 million in fines last year and secured payments to harmed investors in the amount of almost $100 million.
How It Works
To initiate the arbitration, an investor must file a “Statement of Claim” and a “Submission Agreement” with FINRA. The statement should include details of the claim including the names of those involved, dates, and a request for compensation or relief. Investors may file the claim online or mail it to the New York FINRA office.
Once FINRA has received the appropriate documentation, the organization will serve the claim information to the respondents named in the claim. Respondents must respond to the claim and they have 45 days, starting from the day the claim was received, to do so.
Depending on the facts of the claim, FINRA will offer a list of available and qualified arbitrators to each party. Both parties must agree on the selection of arbitrators to move the case forward. FINRA also handles claims that require single arbitrator decisions and those that require a panel of arbitrators (claims in excess of $100,000).
Before the hearing each side of the dispute may hold conferences, resolve preliminary issues, and request documentation and information from the other. Conventionally both parties will use this time before the hearing to build a case and clarify information.
During the hearing, arbitrators will listen to both sides of the case and review both verbal testimony and written/recorded evidence. Witnesses may participate in the hearing process and deliver testimony under oath.
The arbitrator or panel of arbitrators usually deliver their award decision within 30 days of the hearing. FINRA does not require arbitrators to provide explanations for their decisions. However both parties may request an explanation at no additional cost.
If the claimant receives an award decision from the arbitration proceedings, the respondent must pay it or challenge the award within 30 days of receiving the decision. Those who fail to pay the award may face FINRA sanctions. Learn more about what to expect during FINRA arbitration here.
When To File
You’ll start the arbitration process by filing a Statement of Claim with FINRA. After that your case will be transferred to a regional office near your location. FINRA will then assign an arbitrator to your case.
FINRA will serve the Statement of Claim for your case to all of the respondents listed in your claim and the opposition. Next it will notify all parties of the initial hearing location and date. FINRA does not serve any motions, pleadings, or correspondence after this point. You and the other parties involved must file these documents through FINRA’s online portal. All respondents have 45 calendar days to respond to filed claims.
Do I Need An Attorney?
The FINRA arbitration process requires precise communication, exacting timeframes, and thorough investigations. Most investors who file a claim against an advisor or advisement firm are not prepared to handle the legal considerations of the claim. An attorney can help claimants identify additional acts of misconduct or fraud, meet documentation submission timeframes, and protect claimants from defenses against misconduct. Most respondents will hire an attorney to protect their professional interests. Claimants may increase their ability to secure a
successful resolution if they retain legal counsel.
For an investor, FINRA’s services are there as an oversight to protect them, but during arbitration they act as a neutral venue for investment disputes. Though the arbitration is through FINRA, an investor would benefit greatly by working with a skilled attorney who understands investment law during the proceedings. In such cases a FINRA attorney will work to protect your rights and facilitate the claim filing, discovery process, and hearing.
Arbitration claims commonly involve negligence, risk misrepresentation, breach of fiduciary or contractual duties, unsuitability, churning, and unauthorized trading.
The Miller Law Group?
A FINRA attorney at the Miller Law Group who specializes in securities arbitration will protect your rights to relief under FINRA standards. Our legal team can typically recognize signs of unauthorized trading and other forms of misconduct, and we offer professional legal advice to help you move forward. The Miller Law Group has a long track record of successful arbitration.
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