What is FINRA?
FINRA is an organization that regulates investment firms and professionals who sell securities in the United States. Its main objective is to ensure investor protection against brokers and firms who act fraudulently or who fail to act competently and professionally.
What does FINRA arbitration look like?
The FINRA arbitration process is very similar to that of a normal lawsuit. The investor files a complaint and the broker or firm files an answer. Then the panel of arbitrators are selected. Next, the parties begin the discovery process, followed by an evidentiary hearing, if one is requested. Finally, the panel makes its final and binding decision.
This process may seem simple enough, but having a trusted lawyer who knows how to navigate the process and present the best argument is still crucial to recover for the damages you suffered. Any broker or brokerage firm will be represented by a team of experienced lawyers, so you need a strong legal team to represent you against brokers or firms.
There are two types of FINRA arbitration: simplified and full arbitration. Simple arbitration is where the disputed amount is $50,000 or less, not including interest and expenses. Customers can choose one of three ways to present their case in simplified arbitration: (1) No hearing; (2) Special proceeding; and, (3) Regular hearing.
Where no hearing is requested, the arbitrator will decide the case solely based on the parties’ pleadings and other submissions. Sometimes, these cases are referred to as “paper” cases because the decision is made based solely on the documents submitted to the arbitrator.
A special proceeding is an abbreviated telephonic hearing that incorporates many aspects of the standard arbitration hearing. Generally, these hearings are heard via telephonic conference, unless the parties agree to another method. The Claimants and the Respondents each have only two hours to present their cases, followed by one-half hour rebuttals and closing statements. These hearings are completed in a single day and have no more than two hearing sessions. The parties may not cross examine the opposing parties’ witnesses, and the parties cannot call an opposing party as a witness. These are the main differences between a special proceeding and a standard arbitration.
The parties can also have a regular hearing with none of the limitations in a special proceeding.
For simplified arbitration hearings, no hearing is the default, unless either a special proceeding or regular hearing is specifically chosen.
What cases are eligible for FINRA arbitration?
Disputes fall into two main categories: disputes with investors, and disputes involving industry parties only.
Disputes with investors involve an investor and an individual or entity registered with FINRA. Examples of these cases include cases between investors and brokers, investors and brokerage firms, or investors and brokers and brokerage firms. These claims must be filed within six years from the time the events giving rise to the dispute arose.
Disputes involving industry parties only involve an individual or industry registered with FINRA. Examples of these cases include cases between brokerage firms, between brokers, and between or among brokerage firms and brokers. These claims must be filed within six years from the time the events giving rise to the dispute arose.
What damages are recoverable in securities arbitration?
Where the Claimant can establish fraud or negligence by the broker or firm, the recoverable damages is the amount of money the Claimant lost. Claimants can also receive disgorgement of profits, opportunity costs, and punitive damages. Panels may also award legal fees and hearing costs.
What claims can a customer bring against brokers and firms?
There are a wide variety of claims a customer can bring against brokers and firms:
- Churning
- Unsuitability
- Negligence
- Misappropriation
- Failure to Diversify
- Unauthorized Trading
- Material Misrepresentation or Omission
- Breach of Fiduciary Duty
- Failure to Supervise
- Selling Away
- Ponzi Schemes
- Pyramid Schemes