FINRA Arbitration FAQs
- How Much Will It Cost to File a Statement of Claim in an Arbitration Proceeding?
- Who Conducts the Arbitration Proceedings?
- Where is the Arbitration Proceeding Held?
- How Does Shepherd, Smith, Edwards & Kantas LTD LLP Set Its Fee?
- Can I Work Out a Legal Issue With the Brokerage Firm Without Involving Attorneys?
- I Live Outside the United States. Do I File in My Country or Where the Brokerage Firm is Located?
- Is It Worth all the Time and Trouble?
- What Happens After Winning an Arbitration Case?
- What is a Predispute Arbitration Clause?
- What Other Costs are Involved?
- What are My Odds of “Winning” a Case?
- How Does Arbitration Work?
- How Do I Sue My Broker Through FINRA Arbitration?
Fees Associated with Filings
Each forum charges its own filing, administrative and hearing fees. The average filing fee with the FINRA is approximately $1200. The larger the case, the greater the fees will be. Conversely, smaller cases will incur lesser fees. If settlement occurs, a portion of fees paid may be refunded.
If you had an account(s) with any brokerage firm, you will be required to arbitrate through the Financial Industry Regulatory Authority (FINRA). In every new account form for any broker dealer, there will always be an arbitration clause. So, if you signed a new account form, physically or electronically, you agreed to arbitration. FINRA is the Regulatory body that oversees all registered brokerage firms.
If you were dealing with a Registered Investment Advisor (RIA), most of which are not covered by FINRA, most likely you will have to arbitrate through the American Arbitration Association (AAA).
How to Find Where Arbitration Proceeding are Held
At different places around the country. Look at our page on stock fraud arbitration by state to find a list of states where we perform arbitrations.
How SSEK Law Firm Sets Fees
We work on a contingency fee; if you recover nothing, you pay no legal fees. However, if you do recover your claim or any portion of your claim, you are responsible for paying Shepherd Smith Edwards & Kantas LTD LLP a percentage of the amount recovered.
Not Involving Attorneys in Legal Matters With Brokerage Firms Could be a Challenge
You can try, but investors who have qualified legal representation consistently do better in arbitration proceedings. If you are going to hire an attorney, do so as soon as possible. DO NOT talk to the brokerage firm except through an attorney. This includes e-mails. Talking to the brokerage firm is one of the biggest mistakes investors make.
Where to File Outside of the United States
International clients with accounts in the United States will have to arbitrate through FINRA. Traditionally, venue will be the closest FINRA office from where you reside. For example, if you live in Tijuana, Mexico, the closest venue would be San Diego. Venue could also be the city where the branch office of your account is located. Our firm has a lot of experience with international clients, particularly Latin America.
Assessing a Claim is Worth Pursuing
It’s up to you. Consider that you’ll be asked to come up with copies of your financial records and tax returns. There are also other questions about your background and experience that must be answered. You must decide if you want the broker to get away with his or her conduct and the way he or she treated you.
Details Following Winning an Arbitration Case
When an arbitration concludes, the arbitration panel has up to 30 days to make a decision (although the timing varies with other arbitration forums like the American Arbitration Association). When the award is distributed to the parties, it will state how much the investor is entitled to, and may include a requirement that the firm pay interest on the amount of the award until it is paid. The firm is required to pay the award within 30 days of the date when the award is distributed.
In most cases, firms will simply comply with the award and pay the awarded amount within the 30 days allowed. FINRA holds the license for the registered representative or broker dealer to do business in the financial services industry. If the award is not paid as ordered by the panel, FINRA will suspend the delinquent firm or representative’s license until it is paid. That suspension means the firm or individual can no longer legally earn fees or commissions in the industry until the suspension is removed, if it ever is. This is a tremendous amount of leverage that typically avoids the need to go into collection proceedings to try to find assets to size to satisfy an award that are necessary in many court cases.
FINRA will not suspend a license while a respondent is seeking to have a court overturn the award, called a motion to vacate the award. This requires the firm to file a new proceeding in a court claiming that the arbitration award is invalid for some reason. However, the law is very clear that these challenges are subject to one of the most difficult standards that exist in the United States, meaning that motions to vacate are rarely successful. Due to the difficulty in succeeding in one of these challenges, most awards go without such a challenge.
Unfortunately, some awards fall into a third possibility where the firm simply can’t or won’t pay the award. If a firm isn’t capable of paying a substantial award, even the threat of the loss of its license can’t ensure payment. Currently, firms are not legally required to carry insurance to cover these types of claims, so if they don’t have assets sufficient to cover the award, they simply shut down. This leaves the claimant in the position of trying to track down whatever assets the firm may to satisfy as much of the award as possible.
For more information on common types of investment fraud, contact the team at SSEK Law Firm.
Predispute Arbitration Clause Details
Unbeknownst to many customers, any contract with a broker or financial advisor likely includes a predispute arbitration clause. This clause limits your rights to pursue any potential claims against your broker or financial advisor in court. This means that your claims will not be heard by a jury and overseen by a judge. It also means that you will have extremely limited abilities to appeal any decision.
Instead, the predispute arbitration clause will mandate the arbitration forum where your claim is heard and the rules that any arbitration will follow. These rules include the procedure you will need to follow, the manner in which arbitrators (instead of judges and juries) are selected, and the limited rights the parties have after an arbitration award is made.
While there are a number of possible arbitration forums, the most common forums for cases against brokers and financial advisors are:
- FINRA (the Financial Industry Regulatory Authority)
- NFA (the National Futures Association)
- AAA (the American Arbitration Association).
While many parties often sue in court to avoid arbitration and pursue their case in court, courts are reluctant to set aside arbitration agreements, and instead will usually require the parties to arbitrate a case whenever there is a predispute arbitration clause. Because of this, and because of the special rules and procedures of each different arbitration forum, it is critical that you hire an attorney that is experienced and knowledgeable about the arbitration forum where your case will be heard.
Costs Associated with Preparing a Claim
Although our initial consultation is free, you can expect to incur expenses related to preparing a damages exhibit for purposes of mediation and/or arbitration. If the case does not settle (the majority do) then an expert witnesses may have to be retained to testify on your behalf.
Though we are essentially experts ourselves, we–as your attorneys–cannot testify. We have retained the services of numerous nationally recognized experts in the securities industry. We also charge a one time “sundry costs” fee for courier and mailing costs, photocopying costs and any other incidental expenses incurred by Shepherd Smith Edwards & Kantas LTD LLP in pursuit of a client’s claim. Other legal fees will be discussed in advance.
Odds of a Successful Case for the Investor
Like traditional litigation, between 70% and 80% of securities arbitration cases are resolved through settlement, and mutual agreement of the parties. Cases that are not settled however, will have to go through the entire arbitration process, including a final evidentiary hearing on the merits. According to statistics gathered by the Financial Industry Regulatory Authority, customers of broker/dealers were awarded damages between 38% and 43% of the time in customer securities arbitrations.
Nevertheless, these statistics tell only a portion of the story. Ultimately, whether a customer wins or loses a case, and if they win, how much they win, is dependent on numerous factors. These factors include, but are not limited to:
- The quality of the case
- The severity of any misconduct
- The nature of the damages
- The selection of arbitrators
- The experience of the parties’ counsel
If you are considering filing a case against a broker/dealer, you should have experienced counsel do a thorough review of you case and the supporting documents in order to get a much better understanding of what to expect with your case and the likelihood of recovery. Shepherd Smith Edwards & Kantas LTD LLP cannot provide assurance that there will be a recovery in any arbitration proceeding. However, our decision to accept a case is our belief that it has merit and that some recovery of money is warranted.
Arbitration Process Details
Arbitration is similar to a court case in some respects:
- Like court, all the parties file initial pleadings detailing their claims or defenses to a claim.
- Like court, all the parties are entitled to receive discovery so that they can develop the evidence in their cases.
- Lastly, like a final trial, an arbitration will end with a final evidentiary hearing on the merits, where the parties will present their evidence and examine and cross-examine witnesses.
There are however numerous and very important differences in arbitration and court. Most important, in arbitration, your case will be decided by three arbitrators rather than a jury. Another critical difference is that you will have virtually no ability to appeal an unfavorable award. Other key differences include more limited discovery in arbitration and less motion practice. Although, these other differences will be dictated by the rules of the arbitration forum that is selected.
While there are numerous drawbacks to arbitration, arbitration does have some advantages over court:
- First, arbitration is typically faster, usually taking 12 to 24 months for a case from start to finish. This is different than court where cases can take years and are sometimes held up in the appeals process for many more years.
- Arbitration is also typically less expensive than court. Depending on the complexity, size and duration of a court case, litigation can cost hundreds of thousands of dollars exclusive of attorney’s fees. Contrary to this, an arbitration can generally be completed for a fraction of the cost.
Because arbitration is very different than a typical court case, successful litigation in arbitration requires different strategies, theories and litigation styles. This means that it is essential that you employ counsel that is familiar with the arbitration process and the arbitration forum where your case will be litigated.
Many investors do not realize that if they have a dispute with their Financial Advisor or “stock broker”, they cannot sue them in court. This does not mean that an investor cannot seek redress. The fact is you can sue your stock broker, but it has to be done through the FINRA arbitration system. Most investors do not realize that buried in almost all new account forms, with any brokerage firm, there are “arbitration clauses”. These clauses are contractual in nature, meaning when you signed that new account form, electronically or physically, you entered into a contract that MANDATES all disputes be resolved via FINRA arbitration. There is abundant case law that protects arbitration clauses. In short, you cannot get out of them. Judges love them, as it clears their docket and the Supreme Court has ruled that arbitration is just as fair to the consumer as court. It should be noted that there is a very, very limited right of appeal. Arbitration is binding and in almost all cases, final! Many investors are under the mistaken impression that arbitration is just a step, that after its complete its off to court. Not so.
The process of filing a FINRA arbitration is much like filing a case in state or Federal court. As Mark Twain once said, “only a fool has himself as a client.” With that in mind, its best to hire an attorney to navigate you through the process. That attorney should focus almost exclusively on representing investors against brokerage firms. You don’t want an attorney that does personal injury or class actions. Not that there is anything wrong with those fields, but most people would not want their heart surgery performed by an Ear, Nose & Throat surgeon. Likewise, you want your attorney to be a specialist in his field. Moreover, your attorney should have well over a decade’s experience in the field of FINRA arbitration, and the law firm should have been around longer than that. It goes without saying that your attorney should focus exclusively on representing investors against FINRA brokerage firms. Shockingly, there are attorneys that represent both investors and brokerage firms. You do not want that! Lastly, beware any attorney that got your name from some list and contacted you directly via mail, email or telephone. That sort of direct contact is unprofessional, and potentially may be in violation of the Code of Ethics of various jurisdictions.
Once you hire your attorney specialist, the next step is to officially file the claim with FINRA. Your attorney would have already reviewed your documents and conducted the client interview, or at least he should have done such things prior to taking your case on contingency. A seasoned professional wants to make sure there is a light at the end of the tunnel for both lawyer and client. The filing process with FINRA may appear simple, but it may be deceiving. The first document an investor, or Claimant, must file to start the arbitration process is the Statement of Claim, which is the document or pleading filed with FINRA that states the facts and allegations being made. Drafting this document requires skill, experience, and nuance. It’s similar to what one would file in state and Federal court, however the filing cannot be like the ones filed in court. An experienced FINRA attorney will know how much to say and what to say for the optimum impact on the arbitrators.
It is important to understand that the arbitration panel is typically composed of three arbitrators. It is also important to understand that an arbitration hearing is conceptually similar to a traditional trial. In trial, there is a judge, who rules on the law, and there is the jury who determines issues of fact. In an arbitration hearing, the arbitrators act as both judge and jury, ruling on legal issues and determining the facts. Its important your attorney knows how to play to that specific audience as it is different from the judge/jury trial setting.
After the case is officially filed, the brokerage firm gets to respond with its “Answer” which is usually filed with inaccuracies, distortions, and falsehoods, if not lies. Many a client has been shocked by the positions taken by the financial advisor that was once a person considered a friend. The next step is choosing the arbitrators. FINRA provides a list from which your lawyer can strike and rank. Once again its important that your securities counsel knows the system and the players that make up the potential FINRA arbitrator pool.