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The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organisation that regulates member brokerage firms and exchange markets.

Investing in a company or a financial portfolio can sometimes provide fruitful returns, however, losses do regularly occur and occasionally they are a result of broker negligence or investment fraud. In such cases, a claim can be made to the FINRA and, for holder’s of a brokerage account, it is mandatory to take your claim to FINRA for arbitration.

The reason behind this is that brokerage companies registered with FINRA have binding agreements with their customers which makes taking a claim to arbitration an obligation under the law.

FINRA arbitration rules aim to provide claimants and defendants with the opportunity to resolve cases out of court, this has several benefits for both parties including a faster process, lower legal fees, a choice of arbitrators and no right of appeal except in rare circumstances.

If you are considering submitting a FINRA arbitration claim or wondering what your legal standing is in the event of brokerage fraud, there are various valuable pieces of advice and need-to-know information that will increase the chances of your claim being settled in your favour, which you can read more about below.

Hire an Experienced Attorney

The first step in filing a FINRA arbitration claim is hiring the right lawyer to represent you. According to advice from the professional investment fraud lawyers at Madia Law, the attorney you choose should be aggressive, experienced and fully focused on winning your case. This is vital to your chances of success as the majority of brokerage firm’s are subject to mandatory FINRA arbitration so in many cases they will employ an equally astute securities lawyer to defend them.

What Does FINRA Do?

Formed in 2007 after receiving approval from the U.S Securities and Exchange Commission (SEC), FINRA is a non-profit organisation authorised by the government to create and enforce rules and inspect brokerage firms for compliance. The actions of FINRA can be seen in its records from 2020 as it handed out 808 disciplinary actions, collected $57 million in fines and commanded $25.2 million in compensation payments to defrauded investors. In addition, the organisation referred over 970 investment fraud and insider trading cases to the SEC.

It is Similar to a Court Hearing

The process of FINRA arbitration is often simpler and quicker than a court case, however, the legal processes and procedures do share some similarities. For instance, during the final hearing, both parties have the opportunity to present and support their legal arguments using documents and witness testimonies. Rather than a judge presiding over an arbitration case, it is the task of a single arbitrator or a panel of three to impartially examine the evidence and decide a ruling. Furthermore, FINRA arbitrators are allowed more flexibility when interpreting legal issues compared to judges.

The Process is Different for Larger Claims

The monetary size of your claim is a determining factor in the arbitration process as cases that involve larger compensation claims over $50,000 must include an in-person hearing in front of a panel of three arbitrators, one of which occupies the position of chair. On the other hand, claims considered to be small are heard by a sole arbitrator and the parties can choose to process the case in person, over the phone or by paper communication and documentation. To ensure smaller claims are heard promptly, FINRA may opt to submit a claim to go through a Simplified Arbitration Process.

Arbitration is Faster Than Court Proceedings

Arbitration cases are known to be settled quickly compared to those that go to court and are typically completed within 12-16 months. The major reason for this faster turnaround is the simplified process of discovery when both parties exchange documents and identify witnesses.

Submit Your Claim On Time

FINRA arbitrations differ from court actions as they are subject to eligibility regulations set by the FINRA forum that requires all claims to be submitted within six years of the event which caused the dispute. However, these regulations can vary state to state with some time frames for eligibility being much shorter, therefore if you are experiencing a dispute with a broker you should submit your claim sooner rather than later.

How to File a Claim

The rules governing investment fraud and broker misconduct that can be found in the FINRA Code of Arbitration state that the first step in arbitration is filing a Statement of Claim. This document will provide a detailed description of the dispute, the names of the parties involved and the amount of compensation claimed.  A strong Statement of Claim presents the facts and legal principles relating to a case.

In addition to a Statement of Claim, claimants must also complete a Submission Agreement stating that they understand and agree to adhere to FINRA’s procedures and regulations. Most importantly it also establishes an agreement between both parties that if the case ends with a hearing then the ruling by the arbitrator is final, although occasionally cases can be appealed at the SEC. Usually, these initial documents can be filed electronically on FINRA’s portal enabling them to quickly deliver the claim to the accused brokerage firm.

Your Case Will Be Assigned To A Regional Office

After FINRA has received, filed and served a Statement of Claim, they will select a regional office and arbitrator lists close to where both parties reside, who will be assigned the case. Oftentimes, the location of a hearing is the place the claimant lived when the event causing a dispute occurred, however, it can be altered in certain circumstances or if both parties are in agreement. Generally, there is a minimum of one FINRA hearing location in each state.

How Arbitrators Are Chosen

Upon receiving a Statement of Claim, a brokerage firm has 45 days to do their research on a claim, prepare any defence and serve their response. Next, FINRA will create a list of possible arbitrators for the case and send identical copies to each party, included in the document is detailed information about each arbitrator’s background such as their education, employment history, and training. Furthermore, the report lists the cases where an arbitrator issued the final ruling.

During the arbitrator selection process, either side can remove arbitrators from the shortlist and rank the remaining candidates. The list also categorises the potential arbitrators into two categories; non-public and public. Non-public arbitrators have connections with the securities sector whilst public arbitrators do not. This is important because in cases with larger claims, the plaintiff has the right to strike all non-public arbitrators.

Investing can often lead to good rewards when your money is managed carefully and professionally, however on occasion losses can be incurred due to investment, brokerage fraud or misconduct. Therefore, if you believe you are a victim of investment fraud or think you are at risk of it, then it is well worth reading advice on the legal process involved so you know what to expect.