About FINRA Arbitration

The Financial Industry Regulatory Authority (FINRA) monitors and regulates Wall Street brokerage firms and stockbrokers. Every stockbroker and brokerage firm must be an FINRA member to operate; and, every FINRA member must follow FINRA rules and regulations.

If a brokerage firm or stockbroker breaks FINRA rules or other laws, they can be held accountable through FINRA arbitration proceedings. If an investor wins an arbitration against his brokerage firm, the brokerage firm will be forced to pay him damages.

Do I Have to Arbitrate My Stock Fraud Case?

FINRA ArbitrationThe reason defrauded investors have to resolve their disputes through FINRA arbitration is because FINRA requires customer/broker contracts to contain a ‘mandatory arbitration clause.’ That means, in virtually every customer/broker relationship, the customer (you) must resolve disagreements through arbitration.

In extreme cases, you might be able to pursue your claim in actual court. However, 99 percent of the time, you’ll need to go through the FINRA dispute resolution process.

How Does FINRA Arbitration Work?

FINRA Arbitration is both similar and very different from normal court proceedings. In fact, the differences are enough to make a non-FINRA attorney’s head spin. That’s why it’s essential for defrauded investors to find an experienced FINRA attorney to represent them.

Here are some differences between arbitration and the normal court system:

  • FINRA arbitration proceedings are faster. Court proceedings often continue for years, whereas FINRA arbitrations typically resolve within 8 to 16 months. This is obviously a very good thing for all parties concerned.
  • FINRA arbitration is more informal. Arbitrators don’t have to follow the letter of the law when making their decisions, nor do they have to be attorneys. This could work for you or against you. If an arbitration panel is emotionally sympathetic to your case, it could work in your favor. But if your lawyer can’t bring your legal arguments down to earth (so that a non-attorney arbitrator can understand them), it could work against you.
  • There are a lot of other differences too. The way things move from one point to another, the kinds of motions and documents that must be filed, and laws and regulations that come into play in FINRA arbitration are unique and unfamiliar to most attorneys. Even the ‘culture’ and ‘politeness standards’ by which your lawyer and the brokerage firm’s lawyer interact with each other is unique. Defense counsel will immediately sniff out an attorney who’s unfamiliar with the process, and sometimes they’ll play ‘dirty pool’ to exploit that advantage.

Do I Really Need an Attorney in FINRA Arbitration?

An investor who tries to represent himself is at an extreme disadvantage. Investors represented by attorneys without extensive FINRA experience are also at a disadvantage. Remember that brokerage firms are represented by some of the highest paid and prestigious law firms on Wall Street. This is why a highly experienced and well-regarded stock fraud attorney is an essential component to winning your case. An experienced stock fraud lawyer can help your navigate FINRA’s grey waters to ensure you receive the highest possible compensation for your claim.

Stages of FINRA Arbitration

The FINRA arbitration process goes through a series of stages, which have strict timetables and deadlines associated with them. The numerous complexities involved with each stage of the arbitration process should not be underestimated. Fortunately, a qualified stock fraud attorney can hold your hand through this process with dignity and ease.

Here are the most important stages of FINRA arbitration you should know about:

  • Initial Consultation: After you talk with a stock fraud attorney about your case, he will decide if you have a viable claim for damages. Your attorney will know the right questions to ask to determine what kind of case you have. If the attorney takes your case, you’ll probably sign a contingency fee agreement. In other words, you will not pay anything unless a favorable outcome is achieved. This can be extremely advantageous to an investor who already lost a great deal of money, and can’t afford to lose more money in a case that doesn’t have a guarantee of success. 
  • Document gathering: Before filing a claim for damages you must first gather any important documentation relating to your case. Ideally, you’ll want to obtain a complete set of monthly account statements dating back six years into the past. If you don’t have them, don’t worry. Your attorney can obtain them on your behalf from your brokerage firm. Opening account paperwork, including the various contracts and agreements you signed at the beginning of your relationship with the brokerage firm, are also important. Last but not least, make sure your financial records, including your home mortgage loan paperwork, bank account statements, other brokerage firm statements, tax records and the rest of your financial records are in order. You’ll need this information during the discovery stage of litigation (see discovery proceedings below).
  • Detailed Financial Analysis: After a complete set of financial records has been obtained, your attorney will have an accountant perform a detailed loss analysis. All of your financial damages, including both realized and unrealized losses (i.e., whether or not you sold or continue to hold the securities at issue, investment declines will be included).
  • Detailed Legal Analysis: After calculating the exact dollar amount of your damages, your attorney will start digging deep into your financial statements. This will determine the reason for your financial losses. He will also determine the laws and regulations your brokerage firm violated when it caused those losses. Your lawyer will then map out the legal strategy for your case to obtain full or partial compensation for you.
  • Draft And File The Statement Of Claim: Next, your attorney will write your Statement of Claim which could be anywhere from 8 to 30 pages in length. The Statement of Claim will detail the story of how you were harmed by your brokerage firm, what they did wrong, and provide a legal foundation and arguments to support your claim. Once complete, your Statement of Claim will be filed with FINRA Dispute Resolution.
  • Arbitration Panel Selection: After the brokerage firm has responded to your Statement of Claim with a Statement of Answer, your attorney will select the arbitration panel from a list of potential arbitrators. He will rank them and strike them. It will be based from the list according to their backgrounds and experience and any conflicts of interest that exist.
  • Discovery Proceedings: This is when you’ll need to produce and share your personal financial documentation with the defense. The defense will also share a large amount of in-house records with you and your attorney. It will be a lot more information than you will have to share. By way of discovery proceedings, all obtainable facts relating to your case will be put on the table. This way both sides can create the best arguments to support their case.
  • The Possibility of Settlement Negotiations or Mediation: Due to the extreme difficulty in predicting the outcome of an FINRA arbitration, the idea of a settlement is usually viewed favorably by both parties involved. Remember, arbitration panels don’t have to follow the letter of the law. In fact, they often make decisions like an ancient king would, by following their instincts, feelings and internal morality. Since every arbitrator is different, the end result of your hearing can be almost impossible to predict. Mediation may also be employed to assist in settlement negotiations. Here a mediator could be used to assist in reaching an amicable settlement of the dispute.
  • Final Hearing: If your case doesn’t settle, the final hearing will be held. A final arbitration hearing is a lot of a normal court trial. Your attorney will prepare his oral arguments, slides, and witnesses (you, yourself, could even be a witness), and advocate on your behalf. The hearing usually lasts one day. It could last multiple days depending on the complexity of your case and the amount of evidence and witnesses involved.
  • Final Judgment: Sometime after the hearing, the arbitration panel will come to its decision. The decision will say whether or not your claims were ‘denied’ or if they resulted in an award of money, which could include investment damages, interest, attorney’s fees, punitive damages, and more. 

Fight to Preserve Your Rights

As we stress throughout this site, the vast majority of investment fraud happens because a stockbroker or brokerage firm violates its duty to act in accordance with a customer’s best interests. In fact, the system by which stockbrokers and brokerage firms receive compensation promotes this kind of fraud.

Brokerage firms continue to pressure stock brokers to generate profits, commissions, bonuses, and fees to the detriment of consumers. Consequently, countless investors are falling victim to stock fraud and losing millions of dollars every day. If you are the victim of stock fraud it is important to remember: You are not at fault, and compensation may be available.

Types of Compensation

Investors who lost money because of fraud or negligence may be eligible to receive payment for several types of compensation, including:

  • Financial Losses
  • Interest
  • Brokerage & Transaction Fees Paid
  • Attorney’s Fees
  • Costs of Pursuing the Action
  • Punitive Damages

Contact Us

If you are a stock fraud victim, if one of your family members has been the victim of stock fraud, or if you have lost your financial independence due to a fraudulent investment and you have questions about what to do next, contact us for a free and totally confidential consultation.