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FINRA Arbitration Statistics Shed Light on Securities Disputes

As a principal forum for dispute resolution in the securities context, FINRA has overseen thousands of arbitration and mediation proceedings. In simple terms, arbitration is an often-required method of resolving disputes between investors and their brokers or brokerages, in which a FINRA arbitrator provides a binding decision on both parties. And mediation is a voluntary path, in which the parties ask FINRA to provide a mediator to help the parties come to a resolution themselves.

Because arbitration can be mandatory, FINRA has overseen vastly more arbitration proceedings than mediations. FINRA reports that, since 1995, over 17,500 mediations have been initiated in its program. But in that same period, four times as many FINRA arbitrations have been filed.

Beyond overall numbers of cases, FINRA’s statistics reveal important patterns in securities dispute resolution (note that while the modern entity that is FINRA has only existed since 2007, predecessor organizations performed largely similar functions that FINRA now reports as its own).

Arbitration Cases Cover Wide Spectrum

In 2013, 3,714 arbitration cases were filed with FINRA. While this may seem like a great many, it pales in comparison to filings in most every other year since 1999. In fact, only 2007 saw fewer arbitration filings.

FINRA helpfully lists the types of controversies brought before its arbitrators, including Unauthorized Trading (260 filings in 2013), Unsuitability (1,243 in 2013), Negligence (1,715 in 2013), and Misrepresentation (1,527 in 2013) [filings can include multiple allegations, hence these numbers not adding up to 3,714]. And these cases have concerned numerous types of securities, including Common Stock (561 in 2013), Mutual Funds (308 in 2013), Corporate Bonds (92 in 2013) and Options (115 in 2013).

Not surprisingly, about half of all arbitration cases close through direct settlements between the parties (and about 10 percent settle through mediation). And, where the case proceeds all the way to a decision, the customer/investor wins less than half the time (42 percent in 2013, a five-year low).

Arbitration Filings Rise and Fall with Economy

Interestingly, the number of arbitrations has dramatically increased and decreased over the years. In 2000, 5,558 cases were filed. That number grew—year after year—until it hit a peak of 8,945 in 2003. Following 2003, filings fell—year after year—until the dramatic low of 3,238 in 2007. Then, filings spiked again, reaching 7,137 in 2009 and falling—year after year—until today.

The pattern is clear: rise and fall, rise and fall. The dot-com bubble burst in 2000, investors lost historic amounts of money, and brokers and brokerages were held to account for whatever bad faith role they may have played. The market calmed again. Then, as the recent recession set it post-2008, investors lost historic amounts of money, and brokers and brokerages were held to account for whatever bad faith role they may have played.

It may not necessarily be that more brokers and brokerages are at fault when losses are incurred during economic crises. But, through FINRA arbitration, customers understandably pursue all avenues available to recover their investments.

If you believe that you may have been the victim of securities fraud or financial exploitation, please contact attorney Gregory Tendrich, P.A. to discuss your legal options.

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