FAQs

Here are some of the more frequently asked questions concerning the FINRA Arbitration Process.

Q: Why do investors have to use FINRA arbitration for investment fraud / stockbroker claims?
A: Virtually all stockbroker claims are decided in arbitration rather than court. That is because brokerage firms require their customers to sign agreements saying that the customer waives the right to go to court, and instead agrees to arbitrate all disputes. Stockbroker arbitrations are filed with FINRA, the Financial Industry Regulatory Authority, formerly known as the NASD. For the past 20 years, the courts have consistently upheld and enforced these agreements, eliminating the ability of most investors to file their claims in court. E-mail Investorlawyers

Q: How does FINRA arbitration work?
A: Arbitration is similar to a trial in court, except instead of a judge and jury the case is decided by a panel of one to three arbitrators which act as both judge and jury. They hear and weigh the arguments and evidence of both sides of a case, then render a binding decision. The arbitrators generally include at least one “industry” person and two non-industry or “public” arbitrators. Arbitrators generally do not act as such on a full time basis, and may include accountants, attorneys, sales representatives, bankers, educators, retired judges and other professionals from the community (although there are no formal educational or professional requirements for service).

Most FINRA arbitration cases are resolved via settlement. In the cases that are not resolved before the hearing, the arbitrators hear the testimony of witnesses, review the account statements and other important papers that the parties submit, and listen to the arguments of attorneys much like a court or jury would – only the case is tried in a somewhat less formal conference room setting rather than a courtroom. After the hearing is over, the arbitrators deliberate in private and then issue a written decision, which is binding on the parties. If you win your case and the brokerage firm does not pay your award, they are subject to suspension from the FINRA until the award is paid.

Unlike court proceedings, arbitration usually doesn’t involve depositions, motions, or appeals. It’s usually much faster and cheaper than civil court. The average length of time for a case to be completed is 12 months from filing to the final hearing date, versus more than two years in state or federal court.

The arbitrators are required to issue a decision within 30 days of the end of the hearing. Typically, the decision is a brief typewritten document that states the result of the arbitration proceeding, but does not give the reasons why the arbitrators decided the case the way that they did. Arbitration decisions are final and binding. In fact, as a rule they are more final than court decisions, because the grounds for appeal in arbitration are extremely limited and court challenges to arbitration awards very rarely succeed. E-mail Investorlawyers

Q: What are the steps in a FINRA arbitration?
A: To start an arbitration, the investor (known as the claimant), usually through a lawyer, files a Statement of Claim and other papers with FINRA. This document is similar to a complaint that is filed in court, although it is sometimes less formally worded. Typically, the Statement of Claim contains a brief summary of what the claimant says that the brokerage firm did wrong, a summary of the legal theories on which the claimant hopes to base a recovery, and a demand for monetary and other relief. FINRA then serves the claim on the stock brokers or financial advisers (known as the respondents) that are being sued. Respondents then file an Answer to the claim, which usually denies responsibility for the conduct and losses described in the Statement of Claim.

About 90 days after the filing of the Statement of Claim, the attorneys receive three lists of eight, or a total of twenty-four, potential arbitrators. Each side ranks and strikes the names on the lists, based upon their knowledge of and experience with the arbitrators and the arbitrators’ “track records” of previous decisions. Each side can “strike” or eliminate as many as four names from each list (or a total of twelve) for any reason, without providing a basis for the strike. Each side then ranks the remaining arbitrators on each list by number, in order of their preference. From the ranked lists prepared by each side, FINRA selects a panel of three arbitrators.

Once the panel is selected, FINRA schedules an Initial Pre-hearing Conference (“IPHC”). The IPHC is a telephone conference between the arbitrators and the attorneys for the parties. At the IPHC, the parties agree upon the length and dates for the hearing that will decide the claims. To prepare for the hearing that will decide the case, both sides participate in discovery of the evidence. The parties exchange pertinent documents and information that is needed to present, argue and decide the case. Each side provides the other with relevant records that may become evidence at the hearing. The claimant typically must provide several years of tax returns and records from his or her other financial accounts, among other records, to the respondents.

Twenty days before the hearing begins, each side is required to disclose to the others the identity of all witnesses, and copies of all of the exhibits they intend to offer at the hearing that have not already been exchanged. At Christopher J. Gray, P.C., we spend a great deal of time with our clients preparing the case for trial. We stay in contact with you throughout the process, send you copies of all important documents, promptly return telephone calls, and keep you updated on all significant developments in your case. Prior to the hearing, we meet with you and review your case and the entire hearing process to make sure we are all fully prepared to present your case fairly and clearly to the arbitrators.

The arbitration hearing takes place in a conference room in a hotel or office suite, or at the FINRA offices, usually in the major city closest where you lived when the investment problems arose. Hearings begin with opening statements by each side, which are speeches by the lawyers previewing the evidence they intend to present. We then go first presenting our case, calling witnesses on your behalf, and introducing exhibits. After we have finished presenting our case, the respondent presents its case. Then the lawyers each give closing arguments summarizing the evidence and arguing why their client should win the case.

At the conclusion of the hearing, the arbitration panel issues a written award, usually within a week or two. Respondents have 30 days to pay any award made against them. E-mail Investorlawyers

Q: What are my odds of “winning” a case?
A: According to the Securities Arbitration Commentator, a periodical publication that has studied the statistics of securities arbitration cases, 80% of all customer cases settle in favor of the investor prior to the rendering of an arbitration award. About half of the remaining 20% that do not settle prior to arbitration result in an award to the customer. We cannot provide assurance that there will be a recovery in any arbitration proceeding. However our decision to accept a case reflects our belief that it has merit and that some recovery of money is warranted.

Sometime before the hearing, the respondents make offers to settle “out of court” in most of our cases. We will assist you in deciding how to respond to settlement offers, and we will certainly tell you if we feel strongly one way or the other. But, the decision is ultimately yours to make. We will not accept your case unless we are confident that there is a good chance we can win at the hearing.

Q: How long does FINRA arbitration take?
A: The average case takes approximately twelve to fourteen months to complete. E-mail Investorlawyers

Q: How does the firm set its fee?
A: We work on a contingency fee of 33 1/3%, rising to 40% shortly before the arbitration hearing if the case goes to trial. If you recover nothing, you pay no legal fees. E-mail Investorlawyers