Arbitration
If you have an account with a broker-dealer you probably signed an agreement that requires you to arbitrate any disputes with your broker. In the absence of an agreement, however, you can still arbitrate any disputes. Arbitration may be cheaper and quicker than going to court. Instead of a judge or jury, arbitrators decide if wrongdoing occurred and, if so, how to correct it or compensate you for it. If your claim is $50,000 or less, the arbitration panel will consist of one arbitrator. If your claim is greater than $50,000, the arbitration panel will consist of three arbitrators.
Simplified arbitration. If your claim is $50,000 or less, you generally will not have to appear in person at a hearing. In simplified arbitrations, a single arbitrator will make a decision on your case by reviewing documents and written descriptions of what happened that you and your broker submit. This is a less costly alternative because you do not have to travel to a hearing and appear in person to give testimony and answer questions. You should carefully review the rules governing simplified arbitration before you file a simplified arbitration claim.
Arbitrator Selection. Single arbitrator panels consist of one “public” arbitrator. Investors have two options for selecting a three-person panel. Under one option, the panel will be comprised of two public arbitrators and one arbitrator with a connection to the securities industry. Under the other option, the panel will be comprised of all public arbitrators. Investors electing to use the all-public option must affirmatively select the all-public option instead of the majority public option within 35 days of service of the Statement of Claim. Additional details regarding the rules for panel selection are available in FINRA’s Arbitrator Appointment Frequently Asked Questions.
When an arbitration is over, the decision of the arbitration panel is final and not generally subject to appeal so that you cannot generally go to court to try again. The panel’s decision can only be challenged under very limited circumstances—for example, if you can demonstrate that an arbitrator was biased. If you want to challenge the panel’s decision you must do so within three months or less in a "motion to vacate." You'll find more information about challenging the panel’s decision elsewhere in Fast Answers.
The majority of arbitration claims involving investors are filed with the Financial Industry Regulatory Authority (FINRA) Dispute Resolution, Inc. The remaining claims are filed with the exchanges.
To file arbitration action. You can find a wealth of information on arbitration—including governing rules, steps for initiating an arbitration proceeding, and the necessary downloadable forms—at the website of FINRA Dispute Resolution. You can also obtain information about how to file an arbitration claim by contacting FINRA’s Director of Arbitration at:
FINRA Dispute Resolution
One Liberty Plaza
165 Broadway, 27th Floor
New York, NY 10006
(212) 858-4400
How Long Do You Have to File a Claim?
You must act promptly or you may lose your right to seek a remedy or recover funds. Generally, the rules governing arbitration allow a claim to be filed within six years of the occurrence or event giving rise to the cause of action. However, time restrictions, called "statutes of limitations," may be shorter than six years. That is, the person against whom you filed a claim may defend him- or herself by arguing that a statute of limitations that is shorter than six years precludes bringing your claim. To determine whether any statute of limitations may apply to your case, and to discuss your rights and remedies, we suggest that you contact an attorney.
Caution. Bear in mind that if an arbitration panel rules in your favor or if you reach an agreement with your broker through mediation, you may not be able to collect your award if your individual broker or brokerage firm goes out of business or declares bankruptcy.
Check Out Your Broker. You should investigate the disciplinary history of your broker or brokerage firm before you invest. For tips on how to do this, please read our publication entitled Check Out Your Broker.
How Do You Find a Lawyer Specializing in Securities?
If you need help finding a lawyer who specializes in securities complaints, read our publication entitled Arbitration, How to Find a Lawyer Specializing in Securities.
What If You Cannot Hire a Lawyer?
Certain law schools in California, the District of Columbia, Florida, Georgia, Illinois, Michigan, New Jersey, New York, and Pennsylvania provide some investors with legal representation through arbitration/mediation clinics. These clinics may be able to help investors who have smaller claims and who are unable to hire a lawyer. You can read more about these clinics in the Fast Answers section of our website.
Broker-dealers cannot use confidentiality provisions to prohibit or restrict an individual from communicating with the Commission, FINRA, or other securities regulators. More specifically, FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) prohibits broker-dealers from using confidentiality provisions in settlement agreements, discovery stipulations in arbitration proceedings, or any other documents that prohibit or restrict a customer or any other person from communicating with the Commission, FINRA, or any federal or state regulatory authority regarding a possible securities law violation.