Most people know that it is a good idea to hire an attorney when entering contracts, creating a will or trust, or engaging in litigation. What you may not know is that you can, and often should, hire an attorney for arbitrations. With increasing frequency contracts contain arbitration provisions that require you to resolve any dispute through arbitration rather than through litigation. For example, when you retain the services of a broker or sign a contract with your financial advisor, that contract likely contains a FINRA arbitration clause.
The Financial Industry Regulatory Authority (FINRA) is an independent regulator of security advisors and securities firms doing business in the United States. When an investor seeks securities sales advice or purchases a security, such as stock, equity, or corporate bonds, the investor and his advisor and/or the securities firm enter into a contract. Typically the contract will include a provision stipulating that any dispute arising under the contract will be subject to the rules of FINRA.
When a conflict arises under the contract, such as if an advisor recommends an unsuitable investment, FINRA has three dispute resolution options: (1) the investor can file a complaint with FINRA against the advisor or the broker company, this is not litigation but allows FINRA to look into your complaint; (2) the investor can proceed to mediation; or (3) the investor can decide to arbitrate the conflict.
When an investor decides to arbitrate the dispute, FINRA arbitration rules dictate the rules of the proceedings. For example, an investor must first file a Statement of Claim with FINRA. Once the investor has paid the filing fees, FINRA will serve the Statement of Claim on the investor’s advisor and/or the securities firm. For claims less than $25,000, FINRA will appoint one arbitrator and the claim will be subject to FINRA’s simplified arbitration rules. If the claim is between $25,000 and $100,000, the parties each will remove arbitrators from a FINRA provided list of potential arbitrators and FINRA will appoint one arbitrator. For claims over $100,000, each party strikes arbitrators from the FINRA provided list and FINRA appoints three arbitrators.
Similar to a court proceeding, there is a discovery period, where each side shares documents and the parties attend prehearing conferences. Parties to a FINRA arbitration can represent themselves in the arbitration and prehearing conferences. However, firms and advisors are typically represented by counsel. FINRA recommends that investors hire counsel given the complex nature of securities law.
On average, a FINRA arbitration can take a little over a year from start to finish. Once decided, the ability to appeal an arbitration decision is very limited for either party. Given the finality of arbitration awards, and the complex nature of securities law, it is advisable for an investor to hire an experienced securities law attorney.
Atkinson, Conway & Gagnon attorneys Christopher Slottee and Sarah Marsey have successfully represented investors in FINRA arbitrations. Most recently in 2011 they successfully represented an investor in a six-day arbitration hearing in Anchorage, after the investor’s advisor gave misleading information about a security sale.