If you are an investor or a stockbroker, the Financial Industry Regulatory Authority ("FINRA") arbitration process began when you opened your account at, or became associated with, a stock brokerage firm and signed an account opening agreement or employment agreement, respectively.
Virtually all agreements with all brokerage firms contain an agreement to arbitrate all controversies and disputes you may have with the brokerage firm. In those agreements, you agree to abide by the rules of FINRA, particularly the FINRA Code of Arbitration Procedure (the "FINRA Code”) and waive a right to have your dispute resolved in a court of law before a judge or jury.
The FINRA Code sets forth all of the procedures and rules governing the arbitration. It describes the controversies that are eligible for arbitration and those that are not subject to the arbitration agreement. There are general arbitration rules governing the parties' conduct in arbitration. The FINRA Code prescribes the minimum content and when to file a claim, counterclaim, cross-claim and third party claim and answer to any and all those types of claims.
There are rules governing the appointment, disqualification and authority of arbitrators along with prehearing procedures and discovery rules. There are rules governing the conduct of the hearing, the type of evidence that may be presented and the manner in which the hearing is to be conducted and concluded.
The FINRA Code sets forth the fee schedule and the manner in which the ultimate award is to be issued by the arbitrator(s) to the parties.
Filing an Arbitration Claim
The formal arbitration process begins with the filing of a Statement of Claim by you or your attorneys. The investor who files the claim is referred to as the “Claimant” in the arbitration proceeding. If you are an investor, the Statement of Claim is the most important document in your case.
This document describes what happened and why you or your FINRA arbitration attorney believe you are entitled to win a monetary award or other relief against the brokerage firm. This is the document that will provide the arbitrators with their first and most important impressions of you and your case against the brokerage firm. It is important that you and/or your lawyers write a clear, concise, accurate, and honest account of what happened and a compelling argument for why you should win the arbitration.
The Statement of Claim can be filed in writing and mailed to the main FINRA office in New York City or filed electronically. FINRA is in the process of going totally paperless, for its convenience, as well as that of the parties and arbitrators.
The FINRA Code sets forth the fee schedule and the manner in which the arbitration award is to be issued by the arbitrators to the parties.
Answer to Statement of Claim
The brokerage firm, the broker and any other adverse parties named in the Statement of Claim are referred to as “Respondents” in the arbitration proceeding. Once filed, the Statement of Claim is served by FINRA on those named as Respondents with instructions to each Respondent to file an answer with respect to the Statement of Claim within forty-five (45) business days of the date of service. If you are responding to an arbitration claim, it is equally important to file a clear, concise, accurate, and honest account of what happened along with a compelling legal argument as to why the claims made against you have no basis in law or fact, and justify a dismissal in the final award.
The FINRA Arbitration Hearing
The type of arbitration hearing conducted likely will vary depending on the size of the arbitration claim. If the claim is for a monetary award in an amount less than $100,000.00, it is a “small claim” that is usually decided by a single public arbitrator.
If the claim is under $50,000.00, the arbitrator will generally render a decision based solely upon the content of the written statements and the supporting documents submitted by each party without any testimony.
If the claim is between $50,000.00 and $100,000.00, a single arbitrator will conduct a hearing where you and your witnesses appear and give testimony and introduce documents into evidence for the arbitrator's consideration and determination. A panel consisting of three (3) arbitrators also may be appointed, if the parties agree in writing.
If the claim exceeds $100,000.00, three (3) arbitrators will be appointed to hear the testimony and resolve your claim based upon all of the evidence. An Award is entered based upon a majority vote by the arbitrators in your case.
The arbitration hearing typically takes place at one of FINRA's regional offices or at one or more hearing sites selected by FINRA in the state where you reside. Depending on where you reside and the number of claims or causes of action asserted in the Statement of Claim, the time it takes from the filing of a Statement of Claim through the conclusion of the arbitration hearing at which the dispute is heard customarily is between twelve (12) and (18) months.
Most arbitration proceedings involving larger claims and three (3) or more arbitrators encompass three (3) to five (5) hearing days. However, it is not unheard of for some complex and larger claims to take weeks to be heard.
The FINRA Arbitration Process
In proceedings before a three (3) person arbitration panel, a qualified chairperson will be appointed as a spokesperson for the entire arbitration panel. He or shoe also will be the arbitrator responsible for the conduct of the hearing.
The chairperson will begin the arbitration hearing by reading formal notices to the parties and requiring each arbitrator and person present, who will testify as a witness, to be sworn in under oath as an arbitrator or witness. Each party, usually through counsel, will then make a brief opening statement concerning what he/she/it intends to prove at the hearing.
Thereafter, the Claimant commences to present evidence, in the form of live testimony and documents, designed to establish liability on behalf of the Respondent with respect to the claims or causes of action asserted in the Statement of Claim. With the permission of the arbitrators, some witnesses may appear via video conference or telephone.
After the Claimant and his or her witnesses testify, the Respondent and/or his/her/its counsel will have an opportunity to question each of them. The arbitrators, too, can ask questions of the witnesses at any time during the course of testimony, but usually wait until the parties or their attorneys finish their respective examinations of the parties and non-party witnesses.
After the Claimant presents all of the evidence in support of his or her claims, the Respondent presents his/her/its defense in the same or substantially the same manner.
At the conclusion of the Respondent's evidence, the parties or their attorneys may present closing statements, which are summations of the testimony and documents introduced into evidence, together with arguments as to why their side should prevail.
Decision and Award
The decision ultimately rendered by the arbitration panel is commonly referred to as an “Arbitration Award.” An Arbitration Award is final and binding on the parties, unless it is successfully challenged in court on limited grounds within a statutory time period. An Arbitration Award typically will issue within thirty (30) days of the date of the closing of the arbitration record and represents the decision of a majority of the members of the arbitration panel.
The Award will include the following information: the identity of the parties; a general description of the claims and defenses; the name of the party who prevailed on each claim or defense; and, the amount, if any, to be awarded to the Claimant, on the one hand, or Counter-claimant, on the other. Alternatively, the Award may order a dismissal of all claims or causes of action asserted in the Statement of Claim, meaning that the Respondent is the prevailing party.
In the Award, the arbitrators will also assess the fees and expenses of the arbitration proceeding against one or more parties. Generally, the arbitration hearing session fees and expenses are allocated equally between the parties.
Collecting Upon an Arbitration Award
If the Respondent in an arbitration is a brokerage firm and an Arbitration Award is entered against it, the firm will have thirty (30) days within which to satisfy the Award, unless otherwise agreed. In the event the Respondent fails to satisfy the Award within that time frame, the Claimant may petition FINRA to suspend the firm's license (or that of any culpable broker) and seek a court Order confirming the Award and reducing it to a final judgment.
Even though you do not need a lawyer to file a claim with FINRA, FINRA recommends that you consider hiring a lawyer to represent you during arbitration process. Since brokerage firms have their own attorneys to represent them throughout the arbitration process, it is highly recommended that you hire an experienced FINRA attorney to represent your interests.
If you have suffered investment losses due to the actions, misconduct or negligence of your brokerage firm or broker, then you should consider filing a claim with FINRA. At Law Offices Stuart L. Melnick, LLC, we can help you file the claim and, also, help you recover any damages to which you legitimately or lawfully may be entitled. We have a history of representing investors successfully in FINRA arbitrations. So, don't wait to take action. Contact us today to see how we may be of assistance to you.