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Understanding the FINRA Arbitration Process

What happens when there is a dispute between you and your investment broker? When you open a brokerage account, you typically sign some sort of customer agreement. This agreement usually contains language requiring arbitration to resolve any disagreement or dispute arising from your account. But what does “arbitration” actually mean?

Arbitration and FINRA

Arbitration is a substitute for the normal judicial process. Instead of suing your broker and/or brokerage firm in court and having your case heard by a judge, with arbitration, your complaint is heard by one or more arbitrators, who render a decision. . The arbitrator listens to facts and receives other evidence then issues a decision—usually known as an “award”—to either you or the broker. Arbitration awards are considered just as legally binding as traditional court judgments. In fact, a party that receives an arbitration award may seek enforcement in the courts if the other party does not comply.

Most investment brokerage agreements require arbitration through the Financial Industry Regulatory Authority (or FINRA). FINRA is a non-governmental, nonprofit organization that serves as an independent regulator for over 600,000 investment brokers throughout the country. FINRA not only provides an arbitration forum for resolution of investor disputes; it also brings disciplinary actions against brokers who violate federal securities laws.

How Arbitration Works

If you are unable to resolve a dispute with a broker directly, you can initiate the arbitration process by filing a Statement of Claim with FINRA. This is similar to a complaint filed in a lawsuit. The Statement of Claim outlines your dispute with the broker and requests some sort of relief, either monetary damages or specific performance. You must also pay a filing fee to FINRA together with your claim. Once a claim is filed, the broker has 45 days to file a written answer with FINRA.

The next step is the selection of arbitrators. If your claim is for $50,000 or less, FINRA will appoint a single arbitrator to oversee a simplified process. If the claim is for more than $50,000 but less than $100,000, the parties select either one or three arbitrators. For claims over $100,000, the parties select a panel of three arbitrators. In single-arbitrator cases, FINRA provides a list of 10 qualified arbitrators to you and the broker. Each side may strike up to four names. FINRA then appoints an arbitrator from among any names remaining on both lists.

Once the arbitrator is named, he or she will hold a pre-hearing conference with you and the broker. The purpose of this conference is to establish a schedule for the arbitration, including a hearing and any deadlines for the exchange of documents, submitting written briefs and other deadlines applicable to your case. The next step is discovery, the process whereby you and the broker request information and documents from one another. . Any disagreements regarding discovery may be decided by the arbitrator.

Following discovery, the arbitrator will hold an in-person hearing with you and the broker. FINRA policies direct the arbitrator to hold any hearing as close as possible to the investor’s residence. Usually these hearings take place at a local hotel or office building.

After the hearing is closed, the arbitrator will issue an award. (If the arbitration is heard by a three-member panel, the award is determined by majority vote.) Unlike court decisions, an arbitration award does not need to contain a detailed explanation of the arbitrator’s reasoning. FINRA rules only require the arbitrator to issue a written award describing the issues involved and any decision regarding damages.

Because the appeal process is very limited, . an arbitrator’s award is therefore considered final. There are limited circumstances where a f court may vacate or reverse an arbitration award if there is evidence of fraud or misconduct on the part of the arbitrator. Such reversals are extremely rare, and judges are loathe to tamper with an arbitration award.

Getting Help With Arbitration

While arbitration may be an alternative to litigation, it is not a simple matter. If you are contemplating action against an investment broker, you should seek out a qualified Florida securities attorney who is familiar with the arbitration process to help you evaluate your case. Contact Gregory Tendrich, PA, today, if you would like to speak with an attorney right away.

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