Erez Law exclusively represents customers in FINRA arbitrations. We have handled thousands of cases in FINRA Dispute Resolution and have recovered in excess of $150,000,000 for investors in FINRA cases. Erez Law lawyers have tried over 50 cases to award (which is the final judgment or verdict in an arbitration case) and possess the skills and experience to litigate FINRA cases successfully. Investors that have disputes with their brokerage firms are required to bring their claims in FINRA arbitration.
There are a number of different federal and state regulatory agencies that oversee the financial sector, but there are also number Self-Regulatory Organizations, known as SROs. These organizations are non-government agencies with the power to enforce and create industry regulations. The mission of these organizations is to protect investors by establishing rules of ethics and equality.
The largest and perhaps most powerful of these organization is the Financial Industry Regulatory Authority (FINRA). FINRA, like other SROs, is not connected to federal or state governments. It is an independent non-profit organization, and its mission is to protect investors from fraudulent or dishonest practices on the part of finance professionals and promote integrity throughout the market.
Many financial advisor agreements contain a clause that requires investors to use FINRA arbitration proceedings to resolve any disputes. While the arbitration process is not the same as a lawsuit, individuals often seek out the advice and representation of securities fraud lawyers who specialize in FINRA arbitration.
What is FINRA Arbitration?
Arbitration enables two parties to reach a resolution without formal mediation. The process typically includes up to three arbitrators who the investors and advisors in the dispute choose. An arbitrator’s role is to read each side of the case, listen to arguments, explore the evidence, and offer an award or outcome. In FINRA arbitration proceedings, and most other arbitration proceedings, the award is a legally binding and final decision.
The parties can choose to take the decision to court to appeal it if: the arbitrator(s) failed to uphold legal duties; if the arbitrators made the decision because of duress, fraud, or corruption; or if the decision was completely irrational.
Why FINRA Matters
Like most individual investors, you likely depend upon information and advice from your broker or advisor to make sound, informed choices when it comes to managing your investments. To be successful, you need to know that you can trust your broker, as well as the larger firm he or she works for, and you also need to be able to trust the companies that offer investments and securities to individuals.
FINRA understands how important the trust among individual investors, financial professionals, and larger firms, companies, and banks is to the financial industry. They utilize a variety of tools to protect investors from unethical practices by brokers, financial advisors, and firms. In its work, FINRA protects not only individual investors but also the integrity of the market as a whole.
What FINRA Does
FINRA works to achieve its goals in several ways. It sets rules that require brokers to be licensed and undergo testing, and it requires truth in advertising for investments. FINRA also helps to ensure that the securities sold on the market are suitable for individual investors, which is important, as some investors’ situations allow them to take on risky ventures, while other investors have lower thresholds for risk. FINRA also works to make certain that investors have ready access to all the information about the market they need to make an informed decision before they invest.
FINRA’s current oversight encompasses over 600,000 brokers and almost 4,000 firms nationwide. The organization assessed over $95 million in fines last year and secured payment to harmed investors in the amount of almost $150 Million.
What FINRA Can Do for You
FINRA’s requirements for registration and licensing are essential to the industry. They ensure those who work in the financial marketplace have the proper qualifications, and that a broker or firm who engages in fraudulent or untrustworthy behavior can be tracked down and held responsible. Your broker should be registered with FINRA – if he or she isn’t, that should set off a red flag. The law requires firms to register with FINRA as well as individual brokers and advisors.
To find out whether or not your financial advisor is registered or licensed, FINRA offers a free service for investors called BrokerCheck. In addition to telling you whether or not a broker is registered, the service provides investors with background information on brokers and indicates if FINRA has received reports of misconduct or criminal activities.
The FINRA Arbitration Process
Average FINRA arbitration proceedings can take around a year to resolve. Investors must pursue arbitration proceedings through FINRA if their investor arrangement includes a written agreement, if the advisor is a member of FINRA, and if the dispute involves an advisor’s or brokerage firm’s securities business.
The FINRA arbitration process typically includes:
- Filing the claim. To initiate the arbitration, an investor must file a “Statement of Claim” and a “Submission Agreement” with FINRA. The statement should include details of the claim including the names of those involved, dates, and a request for compensation or relief. Investors may file the claim online or mail it to the New York FINRA office. When FINRA receives the appropriate documentation, the organization will serve the claim information to the respondents named in the claim. Respondents then must respond to the claim within 45 days of receipt.
- The venue or location of the final hearing will be the closest FINRA hearing location to the investor’s residence. FINRA currently has 70 hearing locations.
- Arbitrator selection. Depending on the facts of the claim, FINRA will offer a list of available and qualified arbitrators to each party. Both parties must agree on the selection of arbitrators to move the case forward. FINRA handles claims that require single arbitrator decisions and those that require a panel of arbitrators (claims in excess of $100,000).
- Before the hearing, each side of the dispute may hold conferences, resolve preliminary issues, and request documentation and information from the other. Both parties will use this time before the hearing to build a case and clarify information.
- There are important differences between FINRA cases and court cases. For example, in FINRA cases there are no depositions which means that neither the investor, the broker or other witnesses will be required to provide lengthy testimony prior to the final hearing.
- Mediation is a non-binding process where the parties use the service of a mediator who is neutral to try to settle the case. Although mediation Is not mandatory, it is very commonly used and often results in a settlement. The parties can also engage in direct negotiation to attempt to settle a case.
- During the hearing, arbitrators will listen to both sides of the case and review both verbal testimony and written/recorded evidence. Witnesses may participate and deliver testimony under oath during the hearing process.
- Final hearings generally last between five and ten days on average for the cases Erez Law has tried. The length the final hearing will of course depend on the complexity of the case, the number of fact witnesses, the number of expert witnesses amongst other factors.
- The arbitrator or panel of arbitrators will deliver its award decision within 30 days of the hearing. FINRA does not require arbitrators to provide explanations for their decisions, but both parties may (as of January 3, 2017) request an explanation at no additional cost.
If the claimant receives an award decision from the arbitration proceedings, the respondent must pay or challenge the award within 30 days of receiving the decision. Those who fail to pay an award may face FINRA sanctions.
How FINRA Arbitration Works
If you have a complaint about misconduct or an investment dispute with your broker, after hiring an attorney, the FINRA arbitration process is started by filing a claim statement with its Dispute Resolution department. There are a variety of different forms of misconduct or fraud you may encounter that could lead you to file a claim. An investor’s first step in restitution is filing an FINRA arbitration claim. Examples of common FINRA arbitration claims include:
- Churning. This is when a broker “churns” up commissions by trading excessively and unnecessarily through an investor’s account.
- Lack of diversification. This is when a broker fails to advise, either through thoughtlessness or blatant misconduct, an investor to appropriately diversify his or her investment portfolio, resulting in significant losses.
- Misrepresentation. Misrepresentation can take a variety of forms in the securities industry, but it generally involves brokers or financial advisors failing in some way to fully inform their clients about the risks or advantages of a particular investment opportunity.
- Negligence. Brokers may also provide investors with bad advice not through fraud or blatant misconduct, but because they themselves are not well informed about the industry. This constitutes negligence, and even though it’s not intentional, finance professionals still need to be held accountable.
- Unauthorized trading. This is when a broker makes trades, purchases, or sales on an investor’s account without his or her knowledge, through a non-discretionary account.
- Unsuitable investments. Your financial advisor has a professional obligation to direct you toward investments that are suitable for your individual needs and goals. Brokers and advisors can have claims filed against them for advising clients to take on unsuitable investment opportunities.
- Violating securities law. Obviously, if a financial advisor or brokerage firm knowingly violates the law, not only will FINRA arbitration likely take place, but the district attorney can file criminal charges against them as well.
- Breach of Fiduciary Duty. Under certain circumstances, or under State law, brokers may owe customers a fiduciary duty. A fiduciary duty means that brokers must place their client’s interest before their own, including full and fair disclosure, among other ongoing duties.
The arbitration panel reviews pleadings, arguments, and testimonial evidence. Its decision (“award”) is final and binding to all parties. A party may challenge the award in court within the statutorily provided time based on very limited grounds. It’s important to understand that, during a FINRA arbitration, FINRA is not there to help the investor, rather, their role is to be neutral – like a clerk of a local court and to administer the arbitration proceeding.
Other Ways FINRA Helps
BrokerCheck isn’t the only service that FINRA offers investors. The agency provides quite a few other free tools aimed at helping individual investors select a qualified, licensed, and trustworthy broker or advisor.
Some of the other resources that FINRA offers to aid investors in their decision-making are:
- The Market Data Center, which provides investors with investment research based on current market data.
- The Fund Analyzer offers comparisons of different mutual fund investment options and allows you to compare their fees and costs.
- The Scam Meter, which lets investors know if a particular investment opportunity shows the traits of a fraudulent scheme.
How Your Attorney Can Help
The FINRA arbitration process requires precise communication, timeframes, and investigations. Most investors who file a claim against an advisor or advisement firm are not prepared to handle the legal considerations of the claim. An attorney can help claimants identify additional acts of misconduct or fraud, meet documentation submission timeframes, and protect a claimant from defenses against misconduct. Most respondents will hire an attorney to protect their professional interests. Claimants may increase their ability to secure a successful resolution if they retain legal counsel.
Arbitration claims commonly involve negligence, risk misrepresentation, breach of fiduciary or contractual duties, unsuitability, churning, and unauthorized trading. A FINRA attorney at Erez Law who specializes in securities arbitration will protect your rights to relief under FINRA standards. Erez Law will always try to obtain the best settlement possible prior to a final hearing, however, there are cases that cannot be settled and must be tried. Erez Law has a consistent record of trying FINRA cases and obtaining successful results. While we endeavor to obtain a settlement, we are always preparing for the final hearing and will be ready if negotiations are not successful.
As an investor, FINRA’s services are there as an oversight to protect investors, but during arbitration, they act as a neutral venue for investment disputes. Though arbitration is through FINRA, you should have a skilled attorney who understands investment law to guide you through the arbitration proceeding.
Trust Erez Law to help you file a FINRA arbitration claim. We recognize signs of unauthorized trading and other forms of misconduct, and we offer professional legal advice moving forward. Erez Law has a long track record of successful arbitration. Contact our office today to discuss your arbitration claim.