Planning for your financial future is a smart decision. Working with a broker or securities firm can help you save for retirement, grow your savings, and even plan for future generations. But what happens if your broker ends up losing you money?
Sometimes, that’s just the luck of the draw. There’s some level of risk inherent in every investment. But if you lost money on your investments because of something that your broker did wrong, you may be able to file a complaint with the organization that governs brokers: the Financial Industry Regulatory Authority (commonly called “FINRA.”)
In these situations, a FINRA arbitration attorney can help you achieve justice. A law firm experienced in securities fraud and other financial matters can evaluate your case and work with you to help recover your monetary losses through mediation or formal arbitration.
What Is FINRA Arbitration?
To understand what a FINRA arbitration is, you have first to understand FINRA. FINRA is a government-authorized not-for-profit self-regulatory organization (SRO) responsible for overseeing the 624,674 broker-dealers and 3,517 securities firms in the United States. Financial advisers, stockbrokers, and other professionals are subject to FINRA’s rules and regulations to protect investors and ensure fairness, integrity, and confidence within U.S. financial markets.
If an individual or a securities firm acts in a way that violates these rules, industry standards, or otherwise acts wrongfully, resulting in investment losses, you have the right to file a claim.
According to FINRA, the most common disputes that lead to arbitration claims involve:
- Breach of fiduciary duty (2053 claims in 2019)
- Negligence (1,826 claims in 2019)
- Failure to supervise (1,731 claims in 2019)
- Misrepresentation (1,688 claims in 2019)
- Suitability (1,580 claims in 2019)
- Breach of contract (1,563 claims in 2019)
- Fraud (1,499 claims in 2019)
- Omission of facts (1,468 claims in 2019)
- Violation of Blue Sky laws (657 claims in 2019)
- Manipulation (384 claims in 2019)
- Elder abuse (207 claims in 2019)
- Unauthorized trading (197 claims in 2019)
- Churning (167 claims in 2019)
- Errors-charges (98 claims in 2019)
- Execution error (51 claims in 2019)
A single arbitration case can include one or more of the above-described claims. It can also involve multiple securities: such as common stock, private equities, municipal bonds, mutual funds, municipal bond funds, options, and government securities.
Nearly all stockbrokers and brokerage firms require their customers to sign agreements that contain mandatory arbitration provisions. This vital contract provision compels investors to undergo arbitration rather than file a lawsuit. Arbitration is a type of alternative dispute resolution where parties who have a dispute agree to allow a neutral third party — the arbitrator — to decide a resolution after reviewing evidence and hearing arguments from each party. FINRA allows the parties to appoint either one or three independent arbitrators, depending on the case, to hear and resolve the claims. In plain English, an arbitration is like a trial, but rather than having the matter decided by a judge and jury, it is instead decided by one or more arbitrators, who have the ability to control the process, hear and judge evidence, and render a final decision.
FINRA Arbitration Process
The arbitration process typically begins with filing a statement of claim with FINRA. This document serves as a legal complaint in a FINRA dispute. FINRA allows investors six years from the date their claims arose to file an arbitration statement of claim. We have argued, successfully, that the investor has six years from the date they knew or should have known of the problem in which to bring the claim.
Once you meet the filing requirements and you’ve paid the filing fee, FINRA will serve the statement of claim on the broker and the process begins in earnest. Next, the following events unfold:
- The respondent (be it a brokerage firm, broker, or both) will file a response to the statement of claim;
- The regulatory agency selects the arbitrators, based on the parties’ input;
- A scheduling conference establishes the dates and deadlines for the proceeding; and,
- The arbitrators schedule a fact hearing.
A FINRA arbitration fact hearing is like a mini-trial. Each side will give an opening statement, present evidence and witnesses, cross-examine witnesses, and give closing statements. The arbitrator(s) will then issue a decision based on the evidence and arguments.
Arbitration awards are generally final, and parties are bound to the terms of the order unless successfully overturned in a court of law within the statutory timeline to challenge such an award. FINRA’s Arbitration Awards Online Database keeps a record of your results and shares awards publicly.
What Does a FINRA Arbitration Lawyer Do?
A FINRA arbitration attorney represents you, the investor, presenting your claims and seeking an order requiring your broker or brokerage firm to reimburse you for your losses. In short, the attorney protects your interests and works to recover you losses following the broker’s or brokerage firm’s wrongful conduct, including violations of the rules, regulations, and laws that govern them.
If you believe that your financial advisor’s wrongful actions caused you to suffer investment losses, then a lawyer can help you decide how to handle the situation. The process begins with a thorough evaluation of your case to ensure you have a viable claim. Your lawyer will research and analyze the following:
- Account statements;
- Communications with your broker;
- Promises made by your broker;
- Your financial goals and level of risk tolerance; and,
- Your understanding of products you’re investing in through your broker.
The initial review is critical because it won’t benefit you to file a claim for losses attributed to risk you understood or just simple bad luck. A complaint against a broker requires negligence or misconduct that contributed to or caused your investment losses.
Another thing a FINRA arbitration attorney will help you do is determine whether the economics of your situation warrant filing an arbitration claim. Their experience will allow them to gauge the likely expenses related to your claim and weigh those against the likely recovery. If, for example, the likely expenses are $10,000 and your likely recovery is $750, they’ll help you determine that it does not make good economic sense to pursue the claims.
Arbitrators vs. Judges: Discretion to Decide an Equitable Result
It’s important to note one meaningful difference between arbitration and a court proceeding: FINRA arbitrators sit in equity. In simple terms, that means they have the power to right wrongs and don’t need to get bogged down in the particulars of the sorts of claims presented to judges and juries (so long as they do not outright ignore the underlying law).
For example, an investor can present evidence of the broker’s wrongdoing and ask for compensation from an arbitrator based on a concept of fairness. By contrast, in a court of law, you, as the investor, would have to title your claims and prove the elements of those claims. For negligence, that means showing proof of duty, a breach of the duty, the breach’s causation of damages, and the damages themselves. Smart defense lawyers love to pick apart the elements to defeat investors’ claims. They have much more difficulty with that strategy when an investor’s lawyer presents equitable claims in arbitration because arbitrators generally want to make things right.
If you have a viable claim, your attorney will advise you on your options to recover some or all of your investment losses. Mandatory arbitration provisions in a signed contract between you and your broker, existing in nearly all cases, might limit your options.
But once your case’s viability is determined, a lawyer will start the process by filing a statement of claim. There are plenty of differing opinions on what a statement of claim should look like, but, as a general rule, we believe the documents should describe in clear detail what your experience was and why you’re entitled to recover your losses. The defense lawyer has to present an even more compelling story to discourage the arbitrators from making things right.
Statement of Claim vs. Complaint
We believe that filing a statement of claim similar to a complaint filed with a court is a mistake. A claim drafted like a complaint makes the defense lawyer’s job easier because it gives them a roadmap to your case and a way to attack each point you make. Too often, this is the sort of thing that attorneys who are unfamiliar with the FINRA process file since that’s all they know from their experience in court. By working with a FINRA arbitration attorney, you can ensure your statement of claim is strong, well-crafted, and puts forth the best possible arguments for recovering the money you lost.
Once the claim is filed and served on the broker or brokerage firm, your lawyer then prepares you for what comes next, including the fact-finding phase and ultimately the arbitration fact hearing. Because arbitrations are similar to trials, it’s important to have an attorney who understands the FINRA arbitration process and applicable rules to advocate for you effectively throughout the process.
How to Choose the Best FINRA Arbitration Attorney for Your Claim
Many law firms represent investors in FINRA matters. That doesn’t mean that they are the best choice for you or your claim. You certainly want an attorney with securities law, negotiation, and litigation skills in general and experience in FINRA arbitration processes in particular. But it’s helpful for you also to have an attorney with whom you get along well, who communicates clearly and effectively with you, and who heeds your interests as their paramount concern.
Hire a Skilled Lawyer
When deciding on a lawyer, first, hire one with experience representing investors in securities fraud cases, as well as FINRA arbitrations. This area of law is complex and requires a good grasp of the rules and regulations that govern securities transactions in the U.S. Because these rules are regularly updated, choose an attorney who routinely works in this particular field of law and follows changes made by FINRA. Since reasoned arbitration awards are not the norm, unlike reported court decisions, the evolution of the laws governing investor claims is different from and, honestly, stunted compared to the sorts of claims heard in courts.
Remember, arbitrators sit in equity, and equity doesn’t always follow the letter of the law. You need an attorney who knows the law but doesn’t get so wrapped up in it they cannot present the merits of your case well enough to warrant an equitable resolution.
Hire a Knowledgeable Lawyer
Second, pick an attorney who has specific experience in claims similar to your own. Financial disputes can be challenging and can vary depending on the specifics of your particular case. Selecting a lawyer who’s handled a claim like yours, as well as securities matters raised, can increase your likelihood of a favorable outcome if their previous results were satisfactory.
Hire an Honest Lawyer
Lastly, select an attorney who’s honest and transparent with you about your case, their knowledge and experience, and your ultimate prospects for acquiring a win. It might feel good to have a lawyer validate your claims and make big promises, but it can cost you a lot of time and money if those promises don’t pan out because your case wasn’t as strong as they initially relayed.
Choose a lawyer that gives you a fair and honest assessment of your claim. You lead an ideal conversation with your prospective lawyer. During the meeting, the lawyer offers their advice, which should be supported by anecdotes and expertise. Most importantly, pick a lawyer with whom you’re comfortable and can share openly.
Considering Filing a Claim with FINRA? We Can Help.
When you choose a financial broker, you’re putting your trust in that person. When their mistakes cost you money, it can jeopardize your financial future, including your retirement. We understand how difficult this can be, and we’re here to help.
At McCarthy, Lebit, Crystal & Liffman, we strive to help people who have suffered financial losses at the hands of those they entrusted with their money and their futures. With more than 20 years of experience representing clients with investor claims, we have the knowledge and skills to help our clients get results. To learn more or to schedule a consultation, call our Cleveland law office at 216-696-1422 or email us at any time.
