FINRA Arbitration: A Complete Guide for Investors

Do you have a complaint against your stockbroker or your brokerage firm? If so, you will likely need to pursue compensation through the arbitration process set up by the Financial Industry Regulatory Authority (FINRA).

The reason for this is that your brokerage account agreement most likely contains a mandatory predispute arbitration clause. This binding provision requires disputes against stockbrokers and brokerage firms to be decided through private arbitration, and not through traditional litigation.

The good news is that you can still recover full and fair compensation for your investment losses through FINRA arbitration.

Though, the process can be complex and confusing. To protect your investor rights and financial interests, you need to hire the best FINRA arbitration lawyer.

Additionally, you should also have a basic understanding of FINRA’s arbitration process. At Sonn Law Group, we are committed to advocating for investors nationwide. Here, we have put together a complete investor guide to the FINRA arbitration process.

Your Ten Step Guide to FINRA Arbitration

1. Get Your Claim Reviewed By a Qualified Attorney

For investors, it can be extremely difficult to know if they were actually the victim of fraud or broker negligence. You may have suffered substantial investment losses, but your broker might be telling you that you just had bad luck. In their words, you were merely the victim of market risk.

To know if your broker is telling the truth, you owe it to yourself to have your claim reviewed by an experienced investment fraud attorney. Your attorney will be able to conduct a comprehensive review of:

• Your brokerage account statements;
• Your relationship with your broker;
• Your broker’s promises and conduct;
• Your investment objectives; and
• Your risk tolerance.

With this information, your attorney can assess whether or not your financial losses were suffered (at least in part) because of misconduct by your broker or brokerage firm.

2. Consider Mediation and Other Informal Remedies

If the facts of your case merit pursuing a legal claim, you should start by considering all of your available alternative remedies. FINRA arbitration should be seen as the last option, not the first option. In most cases, you should begin by contacting your broker or the compliance department of their member firm to discuss your complaint. In some cases, informally raising the problem with your brokerage firm can lead to a relatively quick and painless resolution. Though, this is certainly not always the case.

The next step is to consider FINRA mediation or direct negotiation. These are fully voluntary, non-binding dispute resolution methods that can sometimes help you make major progress. You may even be able to reach a settlement with your broker. Though, if these remedies prove to be insufficient for your needs, then it is time to escalate your complaint to a FINRA arbitration panel.

FINRA ARBITRATORS GUIDE TOPICS

3. Prepare and File Your Statement of Claim

If you do need to file a formal complaint to a FINRA arbitration panel, you will need to prepare and file your Statement of Claim. A Statement of Claim is essentially your legal complaint; it is your opportunity to make your case. When you file this statement, it means that you have officially initiated the arbitration process.

All deadlines become relevant. Investors should always have their Statement of Claim prepared by a qualified attorney. It is imperative that your complaint is thorough, accurate and backed up by strong supporting evidence.

4. Await an Answer From the Stockbroker or Brokerage Firm

A copy of your Statement of Claim will go to your stockbroker or brokerage firm (the respondent). Under FINRA rules, the respondent in a FINRA arbitration case must file their answer to your complaint. In general, you will get an answer from the respondent that addresses your allegations and asserts their legal defenses.

This is a very important document as it gives you and your securities lawyer an opportunity to see how the broker is planning on defending the case.

5. Select an Arbitrator to Hear Your Case

Shortly after your broker/brokerage firm has filed their answer to your FINRA compliant, you should expect to receive a letter from FINRA explaining that your dispute is ready for arbitrator selection. With this letter, FINRA should send a list of potentially qualified arbitrators.

You and your attorney should sit down and review this list of arbitrators. Under industry rules, you have the right to strike a certain number of arbitrators from the list. These arbitrators will not hear your case. Then, you and your attorney will rank the remaining arbitration candidates in order of your preference.

Your stockbroker/brokerage firm will be going through a similar process. When both parties return their arbitration lists, FINRA will use the information provided to select the appropriate arbitrators for your panel.

FINRA ARBITRATORS GUIDE TOPICS

6. Prepare for Your First Pre-Hearing

Once the arbitrators have been selected for your dispute, FINRA will set up a pre-hearing conference. In most cases, this initial conference is conducted over the phone. Though, there are some exceptions to that general rule. The purpose of this pre-hearing meeting is to address some of the basic logistical issues involved in handling the dispute. This can include everything from future scheduling to other complex procedural matters.

Notably, this is also a time when both parties should be evaluating their case. It is important to remember that you or your broker or brokerage firm can enter into voluntary negotiations at any stage of the FINRA arbitration process. Of course, in some cases, negotiations will be futile.

Still, your attorney should constantly be re-evaluating your situation to determine how to get the best possible resolution for you. It may be wise to consider negotiating with your broker around the time of your first pre-hearing conference.

7. Go Through the Discovery Process

Soon after the initial pre-hearing, your FINRA arbitration claim will reach discovery. Governed by FINRA-specific rules and procedures, the discovery process is the mandated exchange of relevant documents and records between the two parties of the dispute. For investors, discovery is a very important part of any FINRA arbitration claim.

Often, your stockbroker or their member firm will have critically important documents and records in their possession that you will need access to in order to make the strongest possible legal claim. They have a professional duty to turn over these records. If they fail to comply with this duty, your attorney can take additional legal action to get the evidence that they are holding back.

8. Prepare for the Arbitration Hearing

If no settlement can be reached between the two parties, then the dispute will be heard by the FINRA arbitration panel. The best way to think about the actual FINRA arbitration hearing is that it works much the same way as does a mini-trial.

Indeed, the arbitration hearing will typically proceed in the following order:

• There will be opening statements from each party’s lawyer;
• Evidence, including witness testimony, will be presented;
• The lawyers will be allowed to cross-examine the witnesses; and
• Closing remarks will be made by each lawyer.

In most cases, a FINRA arbitration hearing lasts for somewhere between three and six hours. In very complex cases, the hearing could potentially take multiple days. Once the record is closed, the parties to the case must await the final decision from the arbitration panel.

FINRA ARBITRATORS GUIDE TOPICS

9. Get a Final Decision from the Arbitrators

You should receive the final decision from the FINRA arbitration panel within 30 business days of the date of your hearing. With FINRA arbitration decisions, parties to the case have very limited appeal rights. While you can technically file an appeal in the appropriate district court, judges will only review FINRA abortion decisions in a very limited manner.

Indeed, decisions will only be reversed if the district court determines that the arbitration panel acted in a blatantly unfair manner because of overwhelming bias, corruption, fraud, or some other type of very serious misconduct. Put another way, the FINRA arbitration panel’s decision is almost always final.

10. Collect Your FINRA Arbitration Award

Your stockbroker or brokerage firm should pay you the full amount of your FINRA arbitration award within 30 days of the date that they received the arbitrator’s decision. The only exception to this is if your broker has filed a motion to vacate your award in district court. If that has happened in your case, you need to work with your lawyer to defend that motion and protect your right to receive your award.

If you have not been paid, you should contact FINRA officials immediately. FINRA industry rules mandate that a broker that fails to comply with an arbitration award should be immediately suspended from the securities industry.

Find Out How Our FINRA Arbitration Attorneys Can Help

At Sonn Law Group, we have been fiercely advocating for the legal rights of investors for more than three decades. If you are considering filing a FINRA arbitration claim against your broker or brokerage firm, please contact us today to set up a free review of your case. Our primary office is located in Aventura, FL, and we represent investors nationally.

Related FINRA Arbitration Articles

• Is Arbitration at FINRA Mandatory?
• FINRA Rule 2268: Requirements When Using Predispute Arbitration Agreements for Customer Accounts
• The Statute of Limitations for FINRA Arbitration
• Can I sue for punitive damages?