FINRA Arbitration FAQs

How Much Will It Cost to File a Statement of Claim in an Arbitration Proceeding?
Fees Associated with Filings

Each forum charges its filing, administrative and hearing fees. The average filing fee with FINRA is approximately $1200. The larger the case, the greater the costs. Conversely, more minor cases will incur lesser fees. If settlement occurs, a portion of the fees paid may be refunded.

Who Conducts the Arbitration Proceedings?

If you had an account(s) with any brokerage firm, you would be required to arbitrate through the Financial Industry Regulatory Authority (FINRA). There will always be an arbitration clause 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.

Suppose you were dealing with a Registered Investment Advisor (RIA), most of which are not covered by FINRA, most likely. In that case, you will have to arbitrate through the American Arbitration Association (AAA).

Where is the Arbitration Proceeding Held?
How to Find Where Arbitration Proceeding is Held.

Proceedings are held at different places around the country. Navigate through our page on stock fraud arbitration by the state to find a list of the states where we perform arbitrations.

How Does Shepherd, Smith, Edwards & Kantas LTD LLP Set Its Fee?
How SSEK Law Firm Sets Fees.

We work on a contingency fee; you pay no legal fees if you recover nothing. However, if you 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.

Can I Work Out a Legal Issue With the Brokerage Firm Without Involving Attorneys?
Not Involving Expert Investment Attorneys in Legal Matters Associated With a Brokerage Firm 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 investment attorney, do so as soon as possible. DO NOT talk to the brokerage firm except through an attorney. This includes e-mails. Speaking to the brokerage firm is one of the biggest mistakes investors make.

I Live Outside the United States. Do I File in My Country or Where the Brokerage Firm is Located?
Where to File Outside of the United States

International clients with accounts in the United States will have to arbitrate through FINRA. Traditionally, the venue will be the closest FINRA office to where you reside. For example, if you live in Tijuana, Mexico, the nearest venue would be San Diego. The 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 in Latin America.

Is It Worth all the Time and Trouble?
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 their conduct and how they treated you.

What Happens After Winning an Arbitration Case?
Details Following Winning an Arbitration Case

When an arbitration concludes, the arbitration panel has up to 30 days to decide (although the timing varies with other arbitration forums like the American Arbitration Association). When the award is distributed to the parties, it will state the amount the investor is entitled to. This includes a requirement that the firm pays interest on the award amount until paid. The firm is required to pay the prize within 30 days of the date when the prize 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.

Suspension means the firm or individual can no longer legally earn fees or commissions in the industry until the rest is removed if it ever is. This is a tremendous amount of leverage that typically avoids the need to go into collection proceedings to find assets to size to satisfy an award necessary in many court cases.

FINRA will not suspend a license while a respondent seeks 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. However, the law shows that these challenges are subject to one of the most challenging standards 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 prize. If a firm isn’t capable of paying a substantial award, even the threat of losing its license can’t ensure payment. Currently, securities law firms are not legally required to carry insurance to cover these claims, so they simply shut down if they don’t have assets sufficient to cover the award. Leaving the claimant trying to track down whatever assets the firm may have to satisfy as much of the award as possible.

For more information on common types of investment fraud, contact the expert team of investment attorneys at SSEK.

What is a Predispute Arbitration Clause?
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. Meaning, that you will have minimal abilities to appeal any decision.

Instead, the pre-dispute arbitration clause will mandate the arbitration forum where your claim is heard and any arbitration rules. These rules include the procedure you will need to follow, how arbitrators (instead of judges and juries) are selected, and the parties’ limited rights after an arbitration award.

While there are several 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. Instead, they require the parties to arbitrate a case whenever there is a pre-dispute arbitration clause. Because of this, and because of the special rules and procedures of each different arbitration forum, you must hire an investment attorney that is experienced and knowledgeable. Especially, securities lawyers that are well versed with securities law and about the arbitration forum.

What Other Costs are Involved?
Costs Associated with Preparing a Claim

Although our initial consultation is free, you can expect to incur expenses for preparing a damages exhibit for mediation and/or arbitration purposes. If the case does not settle (the majority do), expert witnesses may 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 that Shepherd Smith Edwards & Kantas LTD LLP incurred to pursue a client’s claim. Additional legal fees will be discussed in advance.

What Are My Odds of “Winning” a Case?
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. However, cases that are not settled 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 brokers/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

Suppose you are considering filing a case against a broker/dealer. You should have an experienced council do a thorough review of your case and the supporting documents 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 assure 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.

How Does Arbitration Work?
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 lawsuit.
  • Like in court, all the parties are entitled to receive discovery to 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 significant differences between 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 from 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 from 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 familiar with the arbitration process and the arbitration forum where your case will be litigated.

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