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Securities Arbitration

Stockbroker & Financial Advisor Claims
(FINRA Arbitration)
Overview of Securities Arbitration as a Method of Dispute Resolution

Customers who open U.S.-based brokerage accounts almost always sign a contract requiring that any disputes between themselves and the brokerage firm be resolved via arbitration. Our firm has a demonstrated track record in successfully representing aggrieved investors in securities arbitration proceedings. Further, in many instances, our attorneys will work on a contingency basis (meaning our compensation is contingent on a successful outcome, and the client pays no attorneys’ fees unless there is a recovery). In appropriate circumstances, our firm will also advance expenses on your behalf while we methodically work toward successful resolution of your matter.

Many investors may be unaware of the following facts:

  • Mandatory nature of arbitration: ever since the Supreme Court’s 1987 decision in the case of Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, investors who want to sue their financial advisors and/or brokerage firm have, for the most part, been compelled to arbitrate their disputes.

  • Arbitrator as judge and jury: securities arbitration is a method of dispute resolution distinct from traditional litigation. Rather than having your matter decided by a judge (and possibly a jury), participants in a securities arbitration will have their dispute decided by impartial persons, known as arbitrators, who will apply a specific framework of industry rules and regulations as well as applicable law to the arbitration proceeding.

About Securities Arbitration and FINRA

How does FINRA figure into the arbitration process?

  • The Financial Industry Regulatory Authority (“FINRA”) is the largest (and currently only) Self-Regulatory Organization (“SRO”) in the securities industry. Accordingly, it is charged with the oversight of brokerage firms and their employees, including financial advisors;

  • When opening an investment account, virtually all customers will execute account opening paperwork that includes an arbitration provision that mandates any dispute shall be arbitrated before FINRA;

  • Among other things, FINRA rules and regulations have been crafted to ensure that investors receive complete disclosure about any investment product before its purchase, and furthermore, that any securities product sold is suitable for that customer’s stated needs and investment profile.

How is a securities arbitration case begun with FINRA and how long will it take?

  • Your case will take about a year, which is usually a faster process than traditional litigation in a courthouse before a Judge. A securities arbitration case is initiated when a Statement of Claim is electronically filed with FINRA’s Office of Dispute Resolution. From this date, any hearing dates are typically selected 12 - 15 months later.

  • Not all FINRA cases will proceed to hearing. In fact, many cases will settle through FINRA’s voluntary mediation process or through negotiations between the attorneys.

Is there a time limit for an investor to bring a claim in FINRA arbitration?

  • Yes. Pursuant to FINRA Rule 12206, an investor has six years “from the occurrence or event giving rise to the claim” in which to file a securities arbitration action with FINRA. However, depending on the circumstances, the “occurrence or event” is not always the initial purchase date of the securities, and we strongly encourage investors to consult an attorney before reaching any conclusion that their claims may be expired.

  • In addition, based on the claims being asserted, an investor should be mindful that other time limitations under state or federal law known as statutes of limitation may affect their ability to pursue claims due to the passage of time.

What are the basic steps undertaken in a typical FINRA arbitration?

After case initiation through filing your Statement of Claim, our office will proceed to shepherd your claim through the FINRA arbitration process. Although no two cases are identical, many securities arbitration cases will involve the following steps:

  • Statement of Claim (“SOC”): Claimant initiates action by filing a SOC with FINRA;

  • Statement of Answer: Respondent(s) has 45 days in which to file an Answer (although that time limit may be extended by agreement of the Parties);

  • Arbitrator Selection: the parties to the arbitration, Claimant and Respondent, will each receive a list of potential arbitrators from which to select a potential arbitrator(s). For most cases, there will be a total of three (3) arbitrators assigned to a case – a panel consisting of a Chair and two other arbitrators;

  • Initial Pre-Hearing Conference (“IPHC”): the IPHC is typically conducted telephonically, and involves the Panel Chair assigning hearing dates for the matter and setting other deadlines concerning discovery, motion and briefing calendars, as well as addressing any other preliminary matters;

  • Discovery: unless otherwise agreed upon by the Parties, FINRA rules mandate that discovery and relevant documents must be produced within 60 days after the Answer has been filed.

    Much, although not all, of the discovery produced in a FINRA arbitration is considered ‘presumptively discoverable’ and must be produced by the respective Party. For example, a broker-dealer must produce: all account record information in its possession for the customer(s) who are Claimants to the proceeding.

  • Hearing: pursuant to FINRA Rule 12213, a hearing location that is closest to the customer’s residence at the time of events giving rise to the dispute will be chosen as a hearing location. The actual proceeding may take place at a conference room, or in a hotel, or at a FINRA office.

    Unlike a traditional lawsuit, where a Judge applies stringent rules of evidence and procedure, a FINRA arbitration is designed to operate as a somewhat less formal proceeding. Each side is allowed to make an opening statement, call witnesses and cross-examine adverse witnesses, as well as present evidence and make a closing argument.

What happens after the hearing and how may I recover an award?

  • Following the final hearing session, which generally concludes after each side has presented its closing argument, the arbitrator or arbitration panel shall render an award within 30 days, pursuant to FINRA Rule 12904;

  • The award itself must contain certain information, including but not limited to: the names of the Parties, their representatives, a summary of the issues, damages and relief requested, and the damages and relief awarded;

  • In the event that the customer(s) win the case, then the Respondent(s) has 30 days in which to satisfy the award.

Common FINRA Claims Our Attorneys Have Encountered

Our firm and its attorneys are proud of their track record in successfully resolving FINRA claims on behalf of investors. The following non-exhaustive list highlights some of the most common FINRA claims that our attorneys have encountered in the course of providing investor representation:

  • Breach of fiduciary duty;
  • Negligence;
  • Failure to supervise;
  • Suitability;
  • Misrepresentation or omission of material facts;
  • Breach of contract;
  • Securities Fraud;
  • Violation of state-specific Blue Sky Laws;
  • Unauthorized trading;
  • Churning (or excessive trading);
  • Selling away.

The attorneys at Law Office of Christopher J. Gray, P.C. possess considerable experience in successfully representing investors in claims against stockbrokers and financial advisors. Investors may contact us via the contact form on this website, at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.