Is Arbitration at FINRA Mandatory?

If you are an investor and you have a claim against your broker or brokerage firm, you will likely be required to go through FINRA’s arbitration process. Indeed, in these cases, you probably will not get your day in court, at least in a traditional courtroom setting. Nonetheless, your claim will be heard.

At Sonn Law Group, our securities fraud attorneys have extensive experience handling all aspects of FINRA arbitration claims. Here, we explain why FINRA arbitration is (almost always) mandatory, as well as the steps you need to take to ensure that your legal rights and financial interests are properly protected.

What is a Predispute Arbitration Clause?

When you opened up an account with your brokerage firm, you likely signed away your legal right to bring a lawsuit for securities fraud or negligence. If you do not remember doing this, you are far from alone.

Many investors have no idea that they have signed an agreement that contained a mandatory arbitration provision. Yet, in the modern world, the vast majority of brokerage and investment account customer agreements contain a predispute arbitration clause.

Essentially, a predispute arbitration clause mandates that you must bring any claim against your broker to FINRA arbitration, instead of into a normal courtroom. This leads some investors to ask the question: Can brokerage firms really do that? For the most part, the answer is yes. The Supreme Court of the United States has repeatedly upheld the enforceability of these types of mandatory arbitration provisions.

These provisions have become so ubiquitous in the industry that it is unlikely that you will find a reputable financial firm that will offer you any other option. While losing the ability to directly bring a lawsuit is a downside for investors, the FINRA arbitration process also offers some important benefits as well. For example, FINRA arbitration is generally much more efficient, being both faster and cheaper than traditional litigation.

When Arbitration Is Required: The Three Elements

If you went into your broker’s office for a meeting, only to suffer serious injuries due to a property defect at the business, you could still bring a lawsuit against the firm. Even though you signed a customer agreement that mandates arbitration, your injuries would have nothing to do with that agreement, and thus would not be covered by it.

FINRA arbitration is mandated for disputes that are related to the registered broker-dealer’s investment business. Indeed, for investors, FINRA arbitration will only be required if the following three criteria are met:

• You signed an enforceable, written agreement compelling arbitration;
• You are in a dispute with a FINRA member firm or a FINRA broker; and
• Your legal dispute involves the broker’s securities business.

You Need to Protect Your Eligibility to Arbitrate

With all securities fraud cases, it is imperative that investors pay close attention to FINRA’s statute of limitations. Put simply, the statute of limitations is the legal rule that controls how long you have to file a claim. If you fail to take action in time, you may lose the ability to take action at all.

Under FINRA Rule 12206, investors have six years from the time of the event that gave rise to the claim to take legal action. However, it must be noted that securities dispute cases are incredibly complex.

There are other legal rules that could make the time you have to take action even shorter. For example, the state of Florida has enacted a four-year statute of limitations for all broker negligence claims. This legal rule could potentially bar you from initiating FINRA arbitration, even if the FINRA statute of limitations clock has not yet run out in your case.

The bottom line in all securities fraud cases: You need to get your claim into the hands of an experienced FINRA arbitration attorney as soon as possible. In fact, as soon as you suspect that there might be an issue with your account, you should contact a lawyer for a comprehensive case evaluation. Your lawyer will be able to ensure that your rights are protected and that you initiate your claim on time so that it is not disallowed due to a legal technicality.

Contact an Experienced FINRA Arbitration Lawyer Today

At the Sonn Law Group, our investment fraud team has extensive experience bringing cases before FINRA arbitration panels. We can help you hold your broker or brokerage firm liable for your losses. To learn more about what we can do for you, please call us today at 844-689-5754 to set up your free case evaluation. From our primary office in Miami-Dade County, we represent investors in South Florida and nationwide.