What to Expect
Securities Arbitration begins with the filing of a Statement of Claim by the Claimant, against the other party, typically their broker and brokerage firm, the Respondents. A Statement of Claim should set forth the factual and legal reasons as to why you belief you are entitled to relief against your stockbroker or investment professional for securities fraud or breach of fiduciary duty. Although there are no formal pleading requirements in securities arbitration, the Statement of Claim, in substantial part, is the equivalent of a Complaint that would otherwise be filed in federal district court.
The cost of filing a Statement of Claim depends on the amount of the claim. Filing fees range from $600 to $1,800, pending on the dollar amount of your claim.
FINRA or the Financial Industry Regulatory Authority offers approximately 48 hearing locations geographically disbursed throughout the United States. The location or situs of a hearing is usually based on the nearest location to the customer at the time their account was opened or where they resided at the time the transactions or the events giving rise to their claims occurred.
Service of the initial pleading or Statement of Claim is made by FINRA on its members. Under the Code of Arbitration Procedures, public customers are not required to arbitrate claims against former FINRA members who have been expelled or have had their registrations revoked.
Respondents, the offending brokerage firm or stocbroker, are provided with 45 days from the service of the Statement of Claim to respond. Answers or Responses typically contain Respondents' version of the facts, and the legal reasons why the customer is not entitled to relief, or why the claim ought to be dismissed. Sometimes, Answers or Responses may contain copies of important documents, including correspondence or e-mails, demonstrating why the facts are different than as alleged in the Statement of Claim.
Thereafter, generally, in arbitrations before FINRA, after Respondents enter their appearances, the parties are provided arbitrator selection materials. Each party is provided with certain biographical information, including the educational and employment background, for each proposed arbitrator. Interests and potential conflicts are sought to be disclosed, and previous Awards decided by that arbitrator are also available for review.
From these lists and summaries, parties rank, in order of preference, prospective arbitrators A Party may strike, without cause, those persons that they do not wish to serve on their Panel. If the Parties do not agree on proposed arbitrators, or all available arbitrators are stricken by both Parties, then FINRA will assign an available arbitrator, whom can only be removed or challenged for actual cause or a conflict of interest.
Customer cases involving claims in excess of $100,000 are typically heard by a Panel of three individual arbitrators, consisting of two public arbitrators and one industry arbitrator. Public arbitrators are typically lawyers, retired judges, professional mediators, and other individuals. Industry arbitrators are individuals with a current or recent affiliation with the securities industry, and for the most part are registered representatives, retired registered representatives, branch managers, analysts, accountants, floor traders, or support personnel.
Once a Panel is appointed, a pre-hearing conference is held where the parties and the Panel scheduled final hearing dates, discovery deadlines, and other administrative matters.
Discovery and the means to obtain relevant evidence in arbitration is very important. In November 1999, FINRA adopted a specific Discovery Guide setting forth those documents and information that are discoverable in customer cases.
Generally, depending on the issues in any particular case, customers should preserve and be expected to produce all written communications between them and their broker, all documents relating to any other securities accounts, together with their tax returns for a period of at three years before they opened their account. Customers are also expected to provide detailed information relating to their business interests, education, and financial condition.
Among other things, brokerage firms are expected to produce all documents relating to your account, including new account forms, customer statements, confirmations, and communications between you and your broker. Records of complaints or disciplinary action against your broker should also be made available together with information and documents relating to the brokerage firm's supervision of your individual broker, the broker's training, and the brokers basis of compensation should also be produced by the brokerage firm in most cases. In connection with the recommendation of any particular security, the broker or brokerage firm also ought to be obligated to produce documents relating to the basis of any such recommendation, if any, along with information relating to any business relationship with the issuer.
While parties are not required to be represented by counsel, arbitration is very much a legal, courtroom-like, proceeding, where, in most cases, parties should be represented by competent counsel. All testimony is given at the time of a final hearing. Parties have the right to make opening statements and summarize what they intend to prove. Parties have the right to call witnesses, and may compel the attendance of nonparty witnesses by Subpoena, by Orders of the Panel, or with the assistance of a state or federal court. The parties and their witnesses present testimony under oath, and subject to cross-examination. Documents are authenticated and offered into evidence. Expert witnesses may be called upon to testify and may be cross-examined. Closing arguments are made, and typically, within 30 days, the Panel renders a written Award.
Arbitration Awards are final, and will only be disturbed by a court in very limited circumstances upon the showing of fraud, corruption, or a manifest disregard for the law. Awards against brokers or brokerage firms must be paid within 30 days, or upon application, FINRA may suspend or revoke their licenses and registrations. Unpaid Awards must be docketed, typically in federal court, as a legal judgments in order to attempt to collect or satisfy any such Award.