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What Happens in a FINRA Arbitration Hearing?

If you have been a victim of securities fraud or have been taken advantage of by an unscrupulous broker, you may be considering FINRA arbitration. FINRA arbitration hearings function slightly differently than civil trials. FINRA arbitration can be cheaper and faster than a civil court trial. However, the arbitration process can seem overwhelming unless you are a securities lawyer yourself. 

At Kurta Law, we prepare our clients by walking them through the FINRA arbitration hearing. We prepared this brief explanation to help you understand all your options when considering FINRA arbitration. With more than 25 years of experience in arbitrating FINRA claims, we know investors have questions. We have your answers.

Should You Consider Mediation First?

Many investors do not realize mediation is a dispute resolution option. Mediation is a voluntary process and can be a low-stakes way to settle your dispute before spending more time on the arbitration process. FINRA offers a mediation service to investors and member firms and boasts an over 80% success rate in informally resolving issues.

Mediation Process

Both parties need to agree to use mediation to resolve their differences, unlike arbitration, where only one party must file a statement of claim to commence the process. To begin mediation, the parties jointly file a Request for Mediation. Together, the parties select a mediator. Once a mediator is selected, the parties learn about the process and schedule a mediation date.

Mediation Result

Unlike a FINRA arbitration hearing, a mediation outcome is not binding. The mediator guides the parties towards a mutually agreed-upon resolution. If the parties end up reaching a solution, they may agree to a binding settlement. On the other hand, they could reach an impasse and either drop the case or take the dispute to another forum—typically FINRA arbitration. 

Mediation Benefits

Mediation is relatively quick, cheap, and voluntary. When both parties agree to mediation, the simple act of volunteering to come to the table can change the dynamics of dispute resolution for the better. As previously mentioned, FINRA boasts an 80% success rate so, when considering FINRA arbitration, make sure to consider all their dispute resolution services. An experienced securities lawyer can help you understand the best dispute resolution process for your case.

What Is FINRA Arbitration?

FINRA arbitration is a form of binding dispute resolution offered to FINRA member firms and associated persons (such as stockbrokers and financial advisors). Investors like you can access FINRA arbitration in any case where there is a binding agreement to use FINRA’s arbitration service. Investors and brokerage firms can also volunteer for FINRA arbitration in cases where there is no pre-dispute arbitration agreement.

Starting FINRA Arbitration

Starting the arbitration process always begins with filing a FINRA statement of claim. Once you file your statement of claim and conduct discovery, you will likely be in a position to prepare for a FINRA arbitration hearing. Typically, it takes about 12-18 months to go from the date of filing your statement of claim to the date of your FINRA arbitration hearing. While this may sound like a long time, the arbitration process moves considerably quicker than civil litigation. In some circumstances, civil litigation can take years between filing a complaint and resolution.

Preparing for the Hearing

About 20 days before your FINRA arbitration hearing, the parties meet (either in person, by phone, or via Zoom) and exchange pre-hearing information. This usually entails disclosing witnesses and whether they will be calling expert witnesses. Each side also provides copies of the exhibits they plan to use during the FINRA arbitration hearing. 

What Is FINRA Arbitration Like?

FINRA arbitration hearings are like civil trials. The lawyer for the claimant will give an opening statement followed by an opening statement from the respondent’s lawyer. Like any civil proceeding, opening statements are followed by each party introducing evidence.

Setting of the Hearing

FINRA arbitration hearings are typically held at a neutral location and not a courtroom. In most cases, the panel of arbitrators sits at the head of a conference table or at a table at the front of the room. The claimant and respondent sit facing each other across the table or at tables facing each other. FINRA arbitration hearings are recorded, and consent is required. FINRA records the hearing electronically for the official record. Parties can pay separately for a court reporter to memorialize the hearing in a written transcript if they choose to do so.

Introduction of Evidence

The parties introduce evidence by calling and examining witnesses during the FINRA arbitration hearing. During the examination of witnesses, the parties can introduce their exhibits and testimony. Usually, the claimant’s attorney goes first, calling and examining witnesses. The respondent’s lawyer is not allowed to ask questions until the claimant’s lawyer has finished examining their witness. During what’s known as the “direct examination” by the claimant’s lawyer, counsel for the respondent can make objections to the witness’s testimony. 

Then, the respondent’s attorneys may cross-examine the witness. In arbitration, the parties have a less restrictive cross-examination of witnesses than they would in a courtroom. For instance, in a court, you may only ask about facts discussed during a direct examination. During a FINRA arbitration hearing, securities lawyers can ask questions about facts relevant to the dispute even if they were not addressed on direct examination. 

Questions by Arbitrators

Arbitration panel members may also question witnesses. Typically, this is done once all the parties’ attorneys have finished their questions. Rarely, arbitrators may interrupt an examination or a witness’s answer to ask a question. Usually, these are clarifying questions regarding testimony or evidence being entered.

Submission of Evidence and Closing Arguments

Prior to closing arguments, sometimes the parties like to present a chart or summary of their evidence. Arbitration panels sometimes allow this and sometimes do not. The parties should know what they can and cannot submit during the FINRA arbitration hearing before the hearing begins.

The parties’ attorneys make closing arguments after all the evidence has been submitted and the witnesses examined. Sometimes, the parties submit arbitration briefs to the panel of arbitrations. This is not required and is up to the panel’s discretion.

Timeframe for FINRA Arbitration Hearings

FINRA arbitration hearings typically take two to five consecutive days to complete. Scheduling depends upon the complexity of your case. These hearings are scheduled months in advance and can be difficult to reschedule. 

A full day during a FINRA arbitration hearing may not actually mean a full day of witness testimony and evidence. Typically, the arbitration panel takes two or three breaks during the hearing day and may only hear four or five hours of witness testimony. Make sure to schedule the correct number of hearing days to accommodate the complexity of your case and the amount of evidence you think you need to present. 

Arbitration Awards

The FINRA arbitration rules specify that the arbitration panel must notify the parties of the arbitration award within 30 days of the hearing. The parties need to know that the award merely specifies which party won the arbitration. However, the parties can pay a fee and receive a written opinion explaining the decision. FINRA Rule 12904 states that parties are entitled to an explained decision without a fee if both parties make a joint request during the pre-hearing stage. Monetary awards need to be paid out within 30 days of the award notification.

How Kurta Law Can Help You in Your FINRA Arbitration Hearing

Our team at Kurta Law has been fighting for investors’ rights for over 25 years. We have been helping people like you get back on their financial feet after loss, fraud, and falling victim to other harms committed by FINRA member firms. We do not represent banks or brokers, only individuals like you. Ready to recover your investment losses? Contact us today for a free consultation to see how we can help you prepare a claim for FINRA arbitration.