BackgroundRather than having their disputes decided by a judge and jury, participants to arbitration proceedings have their dispute resolved by a panel made up of typically 3 arbitrators who are knowledgeable in the area of securities laws and regulation. The U.S. Supreme Court decision, Shearson v. MacMahon, 482 U.S. 220 (1987) enforced mandatory binding arbitration clauses in the securities industry. One of the most important legal aspects of arbitration is that arbitration awards are final and binding, subject to review by a court only on a very limited basis.
Duty to ArbitrateCustomers are bound to arbitration by contract and registered representatives and their firms are contractually bound to arbitrate their disputes by their membership in the Financial Industry Regulatory Authority (“FINRA”), formerly the National Association of Securites Dealers (“NASD”). Upon applying for membership in the FINRA, the broker-dealer and the stock broker agreed to be bound by the rules of the FINRA.
Commencing an ArbitrationArbitrations are commenced by filing a statement of claim within the applicable arbitration forum, together with a submission agreement and the required fees. The fees with the Financial Industry Regulatory Authority (“FINRA”) can range from $475 to $1,800 depending on the amount in controversy. Prior to filing the Statement of Claim, a good attorney will advise the client to have an initial damage analysis performed by a forensic accountant, which typically ranges from $500 to $2,500. Depending on the nature of the case a damage analysis may not be necessary. An expert in the securities or investment field may be retained to testify at the final hearing depending on the complexity of the case. We accept cases on a contingency fee basis meaning we do not get paid for our time we only get paid in the event of a recovery. However, clients are responsible for the costs of prosecuting their case.
The Statement of ClaimThe Statement of Claim, may be in narrative or pleadings form. The Statement of Claim must specify the relevant facts of the dispute, detailing the nature of the dispute, the relevant dates, the transactions in dispute, the investments involved and the amount of damages sought, and the relief sought.
AnswersLike the Statement of Claim, the Answer can be narrative or in pleadings form. The Answer will specify all of the available defenses that the party relies upon, and all facts relative to those defenses.
Hearing LocationAfter the filing of all claims, answers and replies, FINRA will typically notify the party of the location of the hearing. The hearing location is typically the location where the investor was a resident of when the transactions at issue occurred.
Prehearing DiscoveryAll parties are entitled to "discovery", that is the exchange of documents prior to the actual trial. Discovery is a large part of the arbitration process and a good attorney will always participate as exhaustively in discovery as the case permits. In bringing an arbitration claim, customers and brokerage firms are required to exchange documents through what is called the discovery process. FINRA has compiled a list of documents that customers and brokerage firms must produce to each other in securities claims involving customer disputes. These documents include but are not limited to the clients: tax returns for relevant years, statements, trading confirmations, marketing material, correspondence, resume, statements from other brokerage accounts, and other relevant documents which tend to prove your claim.
Hearing ProceduresSecurities arbitrations are conducted in the same manner that a court trial is held. There are opening statements; examination of witnesses, evidence is introduced by the claimant and by the respondents, and closing arguments. It is a formal proceeding and the arbitrators are typically attorneys, retired judges, and industry professionals who are skilled in the handling of evidentiary objections. Awards typically take one week before they are published.