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How Do I Sue My Broker Through FINRA Arbitration?

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.

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