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How Do I Sue My Broker Through FINRA Arbitration for Investment Loss?

Many investors do not realize that if they have a dispute with their financial advisor or stockbroker, they cannot sue them in court. This does not mean that an investor cannot seek redress. The fact is you can sue your stockbroker, but it has to be done through the FINRA arbitration system.

What are Arbitration Clauses and Why do Investors Need to be Aware of Them?

Most investors are unaware 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 a 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 it is complete it's off to court. This is not so.

What is the Process of Filing a Finra Arbitration? Step One: Hiring A Specialist Attorney

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, it's 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's 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 FINRA 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!

Step Two: Filing Your Claim With FINRA

Once you hire your FINRA 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 the lawyer and the client.

The filing process with FINRA may appear simple, but it can be deceiving. The first document an investor, or Claimant, must file to start the arbitration process is the Statement of Claim. This 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. You must also understand that an arbitration hearing is conceptually similar to a traditional trial. In the 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. It is important your attorney knows how to play to that specific audience as it is different from the judge/jury trial setting.

Step Three: Waiting on the Brokerage Firm “Answer”

After the case is officially filed, the brokerage firm gets to respond with its "Answer" which is usually filled with inaccuracies, distortions, and falsehoods, if not lies. Many clients have been shocked by the positions taken by the financial advisor that was once a person considered a friend. As can be imagined, the brokerage firms generally hire high priced attorneys skilled in their craft. This skill specifically includes the ability to twist the fact patterns and lay blame on the investor.

Step Four: Choosing the FINRA Arbitrators

Following the Answer, the next step is choosing the arbitrators. FINRA provides a list of arbitrators from which your lawyer can strike and rank. Once again it's important that your securities counsel knows the system and the players that make up the potential FINRA arbitrator pool.

The Arbitration Panel is chosen from the list that was submitted on the investor's behalf and also the list submitted by the brokerage firm. After assembly of the Panel, the parties (counsel for the investor and counsel for the brokerage firm) conduct the Initial Pre-Hearing Conference or IPHC. This conference is telephonic and its purpose is to set the arbitration hearing dates and deadlines for discovery and the various motions. Step Four: The Discovery Process

One of the most important phases of the arbitration process is the Discovery process. Discovery is defined as the exchange of documents and information between the parties. There are some basic exchanges of documents prior to the IPHC, however, the in-depth Discovery generally takes place between the IPHC and prior to the hearing dates. Be sure your counsel is intimately familiar with the types of documents that must be procured to properly present your case at the arbitration hearings.

Prior to the hearings, the parties usually discuss the potential settlement of the claims. In that vein, it may be wise to engage in mediation. Mediation is a one-day non-binding settlement conference. It is not mandatory. However, the process is generally fruitful, and it is always worth a shot to hear what opposing counsel has to say about the case.

Stage Five: The FINRA Arbitration Hearing

The last stage is the hearing itself. FINRA Arbitration hearings can range from 3 days to two weeks. However, most hearings last three to four days. The hearing usually takes place in a conference center or at FINRA offices nearest to the investors' place of residence.

The process is much like a trial. There are opening statements, examinations/cross-examinations, objections, and a closing argument. Be sure your counsel is experienced in all phases of the hearing process. Unlike a traditional trial, the verdict or Award is not disclosed right after the hearings. It usually takes up to a month.

Once the Award is issued, and it's favorable, the brokerage firm has thirty days to pay. As mentioned above, appeals are extremely limited. If you are successful, you will be pleased with this as the brokerage firms usually cannot drag appeals out for years.

Request Your Free Investment Fraud Consultation

Here at SSEK Law Firm, our securities lawyers have many years of experience helping investors who have been wronged by investment fraud recoup any losses that they occurred. Whether through a financial product failure or broker misconduct, we are confident that we can help you.

We offer a free, no-obligation case consultation. Get in touch with our team of FINRA lawyers today and we can assess your situation.

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