Where are Most Investment Disputes Resolved?

Investment disputes are resolved through FINRA arbitration. FINRA is an acronym for The Financial Industry Regulatory Authority. Arbitration is an alternative to court that is used to resolve disputes.

Every broker-dealer in the United States, requires investors to sign contracts waiving their right jury trials, and requires investors to bring any and all claims FINRA arbitration to resolve their disputes. FINRA is an independent regulator of securities firms that conduct business in the United States. FINRA also has an arbitration department responsible for the administration of all broker-dealer arbitrations.

FINRA works under the direct supervision of the Securities and Exchange Commission. FINRA, in addition to serving as the only arbitral forum for investors, also drafts and enforces rules and regulations governing the ethical conduct of registered broker-dealers and associated brokers throughout the United States.

As FINRA is responsible for overseeing registered representatives that sell mutual funds, stocks, bonds, real estate investment trusts, tenants-in-common, private placements, exchange traded funds and a host of other investments.

While FINRA is where all broker-dealer disputes are resolved, investment disputes with registered investment advisory firms can be resolved in court or through other forums such as AAA (the American Arbitration Association) or JAMS (the Judicial Arbitration and Mediation Services). Gana Weinstein LLP’s investment and securities attorneys help our clients navigate FINRA, AAA and JAMS arbitrations and help securities fraud victims determine where to sue and how to sue their brokers.

Typically, investor disputes, whether FINRA, AAA, or JAMS, are initiated by investors in response to some form of broker misconduct. The types of claims our securities attorneys see in this form are varied. For example, there are claims for churning, unsuitable investment strategies, racketeering, unauthorized trading, securities fraud, and broker theft.

Most arbitration panels are composed of either one or three arbitrators that are chosen by the parties from lists generated by the arbitral forum. The arbitration selection process requires a great deal of research and thought goes into choosing arbitrators. The securities attorneys at our firm regularly conduct rigorous background checks on arbitrators before agreeing to use them.

The procedural rules that apply vary depending on the forum. For example, in FINRA disputes, the FINRA Guide usually controls the procedural components of the hearing. AAA has both the commercial rules and the consumer rules and each applies in different circumstances.

The costs in each forum varies greatly. FINRA can be rather expensive. Therefore, we always counsel investors to only hire attorneys that will handle the investors case on a contingency basis where the attorneys law firm will pay all the costs upfront and will be refunded only in the event of some form of recovery.

If the parties both decide they want to attempt to the settle their claims, they can try to do so through mediation. Mediation is a non-binding voluntary process where the parties agree to present their claims to a mediator. The mediator is an agreed upon third party neutral who is independently paid by the parties to resolve their dispute. The mediator is not responsible for deciding whether one party wins or loses, or how much the broker-dealer should pay. Mediation can achieve a speedy settlement and is preferred by many parties.

If the parties do not settle their claims through mediation, the parties go to an evidentiary hearing. The hearing is like an informal trial with opening statements, direct and cross-examination of witnesses, expert testimony, closing statements and exhibits are presented to the panel. While the claimant, or investor, attempts to prove his case, the respondent, or broker-dealer attempts to present defenses to help the broker-dealers case.

At the conclusion of the hearing, after the panel has listened to all the testimony, received all the documentary evidence and closed the record, the panel will render an award. This award is binding on all the parties. While either party can attempt to vacate the award if he/she is unhappy, it is a very difficult process that is rarely successful.