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FINRA Arbitration and When to Speak with a FINRA Lawyer

As a savvy investor, you probably know what is in every one of your brokerage accounts. You are probably well aware of who your brokers are. You even know who to call if you need to make a quick trade. But how closely did you read the fine print when you signed your investment contract? Whether you realize it or not, you have almost certainly agreed to arbitrate any dispute between you and your broker before the Financial Industry Regulatory Authority (FINRA). A securities attorney can serve as your FINRA lawyer and explain what steps to take next.

The FINRA arbitration process can be challenging. It is governed under the FINRA Code of Arbitration, a complex set of securities industry rules. If you think you may be the victim of securities fraud, talk to an experienced FINRA lawyer right away. You do not have to navigate this process alone.

What Is FINRA?

The U.S. Securities and Exchange Commission (SEC) has delegated authority to FINRA to oversee certain regulatory functions. FINRA regulates and examines certain securities firms and securities professionals.

As of 2020, FINRA had authority over approximately 3,400 securities firms, 150,000 branch offices, and 600,000 registered securities representatives. FINRA also creates standards of conduct for securities firms and brokers, and it provides an arbitration process for its members and their clients to settle disputes.

Is FINRA Arbitration Required?

Almost every dispute you have with a securities professional will need to go through the FINRA arbitration process. Remember the agreement you signed when you opened your brokerage account? It almost certainly contained a clause stating FINRA arbitration is the exclusive remedy for resolving any disputes with your broker. Be sure to check your paperwork if you think the terms are different. 

The FINRA Code of Arbitration permits brokers and clients to opt for arbitration, even when not expressly required. In fact, it might even be to your benefit to take advantage of FINRA arbitration. While it might be tempting to have your day in court, most investors arbitrate their claims against their securities professionals for two reasons: FINRA arbitration is designed to be cheaper and faster than a civil court case.

How Do I Start the FINRA Arbitration Process?

Confirming Your Claim Falls Within the Statute of Limitations

According to the FINRA Code of Arbitration, you have six years from the occurrence or event giving rise to the issue to bring your claim. Before beginning the arbitration process, you must confirm your claim still falls within a valid time frame.

If you waited too long to bring your claims to FINRA arbitration, you might still be able to file your claims in a civil court. However, many states have shorter statutes of limitations for contract and fraud claims (usually one to four years). 

Drafting and Filing a Statement of Claim

You can start the FINRA arbitration process by filing a Statement of Claim. The Statement of Claim is similar to a complaint in civil court. The Statement of Claim details the facts of the case and the remedies requested, much like in a civil case. 

Once you are ready, you will file your Statement of Claim with a Submission Agreement, stating you agree to be bound by the FINRA Code of Arbitration and other FINRA rules. You will submit the whole claim package to FINRA to file and begin the arbitration process. You can file your Statement of Claim online through FINRA’s Online FINRA DR Portal. An experienced FINRA lawyer can help you draft your Statement of Claim and submit your documents. 

Receiving an Answer from the Respondent

The stockbroker or brokerage firm you have filed a claim against has to respond to your Statement of Claim within 45 days of being served. Their answer should explain their version of the facts of the dispute and state their defenses. This is also their opportunity to bring counterclaims, crossclaims, or third-party claims, if relevant. 

Selecting the Arbitration Panel

Once you receive the answer to your complaint, the parties select an arbitration panel. In cases with claims worth over $100,000, FINRA provides each party with a list of 30 potential arbitrators. You and your FINRA lawyer can strike off certain names based on their background or experience and then rank the remaining candidates. FINRA lawyers can offer invaluable insight when selecting arbitrators. After each side submits their rankings to FINRA, FINRA, not the parties, chooses the final arbitration panel. The size of the panel depends upon the amount at stake in the case. The FINRA Code of Arbitration requires FINRA to choose the highest-ranked arbitrators. 

Setting the Pre-Hearing Conference

Once you have an arbitration panel in place, FINRA will set a date for a pre-hearing conference. This is a meeting for the lawyers and arbitrators to discuss any procedural issues and set a date for the arbitration hearing. The hearing date usually takes place about nine months from the date of this pre-hearing conference.

How Does the FINRA Arbitration Discovery Process Work?

Unless otherwise agreed by the parties, discovery needs to be completed within 60 days of the date that the answer is filed. 

Discovery Guides in the Arbitration Process

FINRA helps speed along the discovery process. As soon as the Statement of Claim is filed, the parties will receive a FINRA Discovery Guide and Document Production Lists. These documents outline the basic procedures in exchanging documents and details what needs to be exchanged.

Document Production Lists

Document production lists specify which documents each side needs to produce. Under the FINRA Code of Arbitration, parties can make additional discovery requests. FINRA arbitration rules require the parties to try and resolve discovery disputes in good faith. However, either party may file a motion to compel the production of documents. 

Failure to Participate in Discovery

Discovery is an integral part of the FINRA arbitration process. Failure to comply with legitimate discovery requests threatens the integrity of the process. Accordingly, the arbitration panel has the power to issue sanctions against a party uncompliant with discovery requirements.

What Happens to My Claim Once Discovery Is Complete?

Unlike the discovery process in civil litigation, the arbitration discovery process does not kick off a flurry of motions and legal bills. In fact, depositions and motions are strongly discouraged in FINRA arbitration. Instead, the time is spent analyzing the results of discovery until 20 days before the arbitration hearing.

Exchanging Witness Lists

Before an arbitration hearing, the parties must exchange lists of witnesses they will call and exhibits they plan to use. This is typically done 20 days prior to the hearing.

Preparing for the Arbitration Hearing 

FINRA usually selects neutral locations in which to hold hearings. You can expect your FINRA arbitration to take place close to your home or place of business. Your FINRA lawyer can best prepare you, mentally and emotionally, for how the hearing will go. 

How Do FINRA Arbitration Hearings Work?

These hearings are very similar to a mini-civil trial. If you have ever watched a courtroom drama on TV, you will recognize the flow. Each side delivers its opening statements to the arbitration panel. Your lawyer will then present your evidence. The Respondent then gets to present their side of the story and evidence. The arbitration panel decides what evidence to admit, but they are not bound by the same rules of evidence as a court of law would be. The lawyers for each side then deliver their closing arguments.

Who Decides the Winner?

The arbitration panel decides the winner after hearing all the evidence and arguments. FINRA arbitration awards are determined solely by the panel of arbitrators. Usually, the arbitrators decide by a majority vote, but the parties can waive that rule. FINRA arbitration awards are issued within 30 days of the hearing. Following this, the losing party typically has 30 days to pay any award, fees, costs, or other monies associated with the award.

Can the Loser File a Lawsuit?

FINRA arbitration decisions are final. Unless a state law says otherwise, you do not have a right to appeal to the courts if you lose or disapprove of the award you received.

How Kurta Law Can Help You in the Arbitration Process

At Kurta Law, we have helped thousands of clients successfully navigate the complex FINRA arbitration process. We only help investors like you, not banks or brokers, so we are able to provide the most hands-on service with the deepest experience in investor-specific securities law issues. If you are concerned that you will have to take a securities law claim against your broker to arbitration, contact us today for a free consultation. We can help you get back on your feet and achieve the peace of mind you deserve.