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Securities Arbitration

Why FINRA Arbitration May Be Required

In most instances, investors must utilize FINRA arbitration for securities disputes with brokerage firms and/or their financial advisors because of a contractual provision in their account agreement that requires them to resolve all disputes through a FINRA arbitration proceeding instead of a proceeding in federal or state court.

The FINRA Arbitration Process

Typically, four (4) separate and distinct phases are associated with the initiation and prosecution of a FINRA arbitration proceeding.

The first phase of a FINRA arbitration proceeding begins when an aggrieved investor files a “Statement of Claim” with the offices of FINRA Dispute Resolution. A Statement of Claim contains the customer's version of all relevant facts related to the securities dispute, as well as a request for relief, or damages, that the investor would like to receive at the conclusion of the FINRA arbitration process.

Once the Statement of Claim has been filed with the offices of FINRA Dispute Resolution, it is served by FINRA on the brokerage firm and/or financial advisors involved in the dispute. The firm and/or the advisors are then required to file their “Statement of Answer,” which contains their version of the relevant facts and defenses associated with the securities dispute.

The second phase of a FINRA arbitration proceeding involves the selection of individuals who serve as arbitrators in the dispute and who ultimately will render a final decision between the parties. Depending on the amount of damages involved in the securities dispute, the number of arbitrators can range from one (1) to three (3) individuals. All of the parties in a FINRA arbitration proceeding have involvement in the review process of the arbitrators, as well as the final selection of those who will decide their securities dispute.

The third phase of a FINRA arbitration proceeding involves the exchange of documents and information between the parties on the facts and circumstances associated with the securities dispute.

The fourth and final phase of a FINRA arbitration proceeding is the actual hearing of the securities dispute before an arbitration panel. During an arbitration hearing, all parties involved in the securities dispute are entitled to present their witnesses and documents in support of their respective positions. In many respects, the hearing portion of a FINRA arbitration proceeding is similar to a trial in a federal or state court proceeding.

At the conclusion of the hearing in a FINRA arbitration proceeding, the arbitrators then meet and determine the outcome of the case. Within a few weeks of the conclusion of the arbitration hearing, the arbitrators' decision is issued in a written award.

It is important to note that the majority of FINRA arbitration awards do not offer an explanation or rationale for the arbitrators' final decision. Rather, the FINRA arbitration award simply indicates which party has prevailed and the amount, if any, that the customer is entitled to receive as damages. If a FINRA arbitration award determines a brokerage firm or financial advisor has to pay damages to a customer, the award generally must be paid within 30 days of date that the award was issued. If this does not occur, the brokerage firm or financial advisor can be expelled or suspended from the securities industry.

From a practical standpoint, all FINRA arbitration awards are final and binding on the parties. Only in extremely rare instances will a FINRA arbitration award be subject to a challenge in a federal or state court proceeding.

Our FINRA Arbitration Experience

When it comes to recovering investor losses, the attorneys at Maddox Hargett & Caruso, P.C., believe experience matters. Over the years, we have represented thousands of investors, assisting and advising them throughout the securities dispute resolution process. This includes a FINRA arbitration proceeding, a proceeding in state or federal court, and, when appropriate, mediation.

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