Virtually all broker-dealer account agreements contain pre-dispute arbitration clauses. On the other hand, agreements with Registered Investment Advisors, financial planners, and insurance companies often don’t contain such clauses.
At present, arbitration clauses remain valid and binding on customers. If you agreed in your opening account documents to arbitrate any dispute between yourself and your broker, that agreement will require you to pursue your recovery in an arbitration proceeding conducted by the Financial Industry Regulatory Authority ( FINRA). Arbitrations generally are conducted before three arbitrators. The panelists usually will be lawyers, accountants, or other business persons drawn from outside the investment industry. Until recently, one of the three arbitrators had to come from a pool of securities industry professionals, but FINRA has finally done away with that rule after decades of protest from claimants’ attorneys and state securities regulators. Claimants still are entitled to elect to have an industry arbitrator if they want one on the panel, but we almost always will recommend against it.
There are advantages and disadvantages to both arbitration and court proceedings.
- Arbitration involves simplified procedures that can substantially reduce costs, although some costs of arbitration such as filing fees and session fees actually are substantially higher than one would pay in court.
- Arbitration usually gets completed more quickly than a lawsuit and since arbitration awards generally are not appealed, they usually get paid more promptly.
- As a general matter, jurors in a court case tend to be much more sympathetic than arbitrators, who are inclined to be pragmatic and business-like. On the other hand, if the victimized investor is very wealthy or successful, arbitrators are less likely than jurors to allow jealousy or resentment to play a role in their deliberations.
- Litigants in a lawsuit have depositions and other extensive fact finding procedures at their disposal, while discovery in arbitration is limited mostly to exchanges of relevant documents. But this difference in the scope of discovery is one major reason that arbitration is faster and less expensive than a lawsuit.
- The judge presiding over a lawsuit is often actively involved in negotiating a settlement between the parties, while arbitrators never get involved in settlement efforts. Arbitrations are, however, very frequently settled by the parties through a voluntary process involving the assistance of a neutral third-party mediator.
Investment attorneys in the law firm of McCarthy, Lebit, Crystal & Liffman have extensive experience in handling both lawsuits and arbitrations. After discussing the specific facts of your case, we’ll tell you whether you have a choice between the two, and if so, we can help you choose the forum that’s right for you.