The process of arbitration is the legal remedy that an investor or employee of a broker/dealer has in order to right a possible injustice or financial wrong. Do not confuse arbitration with SIPC. (see my January 2011 blog on SIPC)
However if a registered representative and/or broker/dealer recommend and invest client money into unsuitable risk investments and/or do illegal or unprofessional acts such as churning an account simply to earn commissions there is recourse through a process called arbitration.
A good example of a reason someone would file for arbitration is if an investor requested to have money placed in U.S. Treasury cash management and subsequently discover the broker invested the assets in riskier, less liquid investments that lost significant money; chances are there is more than a probable case for arbitration.
A bad reason to go to arbitration is because investment accounts fell in value due to the global recession. There has to be intent to deceive or a criminal action.
Everyone who invests in the legitimate market with a broker/dealer signs an agreement that states they agree to arbitration and give up their right to suing the representative and broker/dealer in a regular civilian court. The agreement is usually in every new client account form. .
The arbitration process is supposedly less expensive than taking someone to civil court however it is still very expensive. The fee to file is around $1,250 plus the cost of your attorney. Arbitration is not something the lay person can handle by themselves as if it were a small claims court.
If you plan on suing someone in the investment business you have to decide if you were criminally damaged and by how much. In my estimation if the damages suffered are not in excess of $25,000 costs of arbitration may actually equal that amount. And, usually, in arbitration each party pays their own legal bill with very remote chance of being reimbursed for their costs if they should win.
The second thing is to get the proper representation. The lawyer that handled your estate plan, divorce or bankruptcy is not, in most cases, the attorney most qualified to handle a securities arbitration. Finding a securities lawyer or one who specialize in securities law is a chore in itself. I suggest you interview several candidates and the best place to get their names is from a referral from your current tax and legal advisors.
A securities law firm will handle all the paperwork and lead you through the process,
Time frame is usually 12 months to have your case heard from the time your attorney serves the necessary papers with FINRA and to the defendant. FINRA is the Financial Industry Regulatory Authority, Inc.
The rules of law pretty much apply in arbitration as in civilian court. There will be a discovery and deposition. Both sides will be able to interview the other including any witnesses. The arbitration panel may be comprised of either two or three persons depending on the amount you file for damages. One of the arbitrators will be the chairperson who will act as the spokesman and control the proceedings. Usually arbitrators are lawyers or people who are active or retired from the investment/securities business.
At any time prior to the actual arbitration either party may settle or offer to settle. Once this is done than FINRA is notified and the case is closed. FINRA will then send the results to your attorney who will communicate with his or her client.
The arbitrators, or judges are not to be thought of lightly. These are well educated people with extensive experience. Their rule is the absolute final word. Don’t think you can appeal if things don’t go your way. The arbitrators will ask questions, interrupt, clarify and make rulings. They have an extremely active role in the proceedings.
If you think that the arbitration itself will be quick I have news for you. Your attorney will be extremely active for the year prior to your case being heard; asking for documents, sending requested documents and conducting depositions. Even f your case is not unusually complicated it may take four-five days of hearings. Your lawyer or team of lawyers will be charging by the hour.
Unlike a court case where the judge or jury deliberates right then and there; in an arbitration once all testimony is heard and closing arguments on both sides are completed the arbitrators dismiss everyone and leave to deliberate from whence they came. It may be weeks or months before anyone knows what the result is and once made there is no recourse or do-over.
Some people think that the arbitration process is rigged in favor of the investment community. That is not so. After the market collapse in 2008 there have been an unusual amount of new cases flooding FINRA but the results still are split between investors and the investment community on the awards.
If you want to learn more about FINRA and arbitration go to www.finra.org.
Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
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