The Financial Industry Regulatory Authority, or FINRA, is the self-regulatory body that oversees the financial services sector. FINRA Dispute Resolution administers the arbitration forum for
disputes that arise between investors and the individual brokers or brokerage firms that handle their investments. To that end, the vast majority of contracts between investors and brokers include a mandatory arbitration clause, which requires them to resolve their disputes through the FINRA arbitration process rather than through traditional litigation.
An investor who alleges they have suffered financial losses due to fraud or misconduct on the part of their broker must go through FINRA arbitration. If the arbitrators hearing the case side with the investor, they may award that investor compensation for their losses. However, this is not the end of the story, as actually getting the money is ultimately more important than winning in arbitration.
Understanding the FINRA Arbitration Award Process
If you go to FINRA arbitration, the arbitrators may issue an award if you can prove to them that the brokerage firm or individual broker overseeing your investments caused you to suffer financial losses due to fraud or misconduct.
A FINRA arbitration award will include:
- The arbitrator(s)’ decision on the claims asserted by the parties
- A detailed determination of the amount of compensation owed to the investor or claimant if they have ruled in the investor(s)’ favor
A FINRA arbitration award in your favor entitles you to recover compensation from the firm or broker, as the law considers an arbitration award final. Parties who lose in arbitration cannot generally appeal the award. Instead, they must ask a court to modify or vacate the award, which the court can do only in limited circumstances. If a losing party cannot prove that any of the limited criteria for modifying or vacating an arbitration award exist, the court must uphold the award’s validity.
Why Legal Guidance Still Matters After a Successful FINRA Arbitration Award
After a FINRA arbitration that was successful, you still need experienced legal guidance to protect your rights and interests and ensure you receive the compensation awarded to you by the arbitrator(s).
Here are some of the key benefits of having legal counsel after a FINRA arbitration award in your favor:
- Ensuring full payment: An attorney can help you get the payment awarded to you by a FINRA arbitration award by staying in constant contact with the losing firm or broker to confirm payment details. An attorney can receive payment of the award on your behalf and distribute the money to you after deducting legal fees and costs.
- Responding to delay tactics: A lawyer can push back against a firm’s or broker’s delay tactics, such as a lack of communication about payment or inconsistent promises about paying the arbitration award.
- Navigating court proceedings: There’s a chance you may need to go to court to enforce a FINRA arbitration award or if the losing firm or broker files a motion to modify or vacate the award. Your attorney can represent you during court proceedings to assert your rights to compensation.
Deadline for Payment by the Brokerage Firm or Broker
FINRA requires brokerage firms or brokers who lose a FINRA arbitration to pay the compensation awarded by the arbitrator(s) within 30 days of the date the firm or broker receives the award decision. Alternatively, the firm or broker may file a motion in court to modify or vacate the award, which pauses the 30-day deadline for paying the award until the court resolves the motion to modify or vacate. Firms or brokers who do not pay FINRA arbitration awards on time may jeopardize their license to deal in public securities, as FINRA can initiate license suspension or revocation proceedings after the deadline for payment expires.
What If the Firm or Broker Fails to Pay?
Under FINRA rules, a brokerage firm or individual broker must pay an adverse arbitration award within 30 days or face suspension or cancellation of their FINRA registration. A suspension or cancellation of a FINRA registration means a firm or broker cannot continue conducting business in securities with the public as a broker-dealer.
A firm or broker may challenge a suspension or cancellation proceeding by asserting various defenses, such as:
- The firm or broker paid the award in full (with evidence of tendered payment).
- The parties agreed for the firm or broker to pay the award in installments or have reached a separate settlement agreement of their dispute.
- The firm or broker filed a timely motion to modify or vacate the award, which remains pending.
- The firm or broker has a pending bankruptcy proceeding, or a bankruptcy court has discharged the award.
When a firm or broker fails to pay a FINRA arbitration award, a prevailing client can go to court to confirm and enforce the award.
Enforcing an Arbitration Award in Court
You enforce a FINRA award by filing an action in a court of competent jurisdiction to confirm the award, which converts it into an enforceable court judgment. As with other kinds of arbitration, FINRA does not provide an appeals process for challenging arbitration awards. Instead, a party who wishes to “appeal” a FINRA arbitration award must assert a claim in court to vacate the award. However, state and federal laws only permit courts to vacate arbitration awards in limited circumstances, such as:
- A party procured the award through corruption, fraud, or undue means.
- The arbitrator(s) exhibited apparent bias or corruption.
- The arbitrator(s) committed misconduct to the extent that it deprived a party of due process, such as refusing to postpone hearings despite good cause shown or refusing to hear pertinent evidence.
- The arbitrator(s) exceeded their contractual authority in issuing the award.
- The arbitrator(s) disregarded a clearly established law or legal principle.
- The award lacked any reasonable factual basis.
An experienced attorney that handles FINRA arbitration from our law firm can help with FINRA award enforcement.
Contact a FINRA Arbitration Attorney Today
Having experienced legal guidance is a critical part of enforcing a FINRA award in your favor. Erez Law PLLC has represented many investors in enforcing awards in court and defeating attempts to vacate awards the firm has obtained on behalf of its clients. Contact Erez PLLC today for a confidential consultation with a knowledgeable attorney who works on FINRA arbitration cases to learn what steps you need to take after FINRA arbitration.