How Arbitration Works

FAQsAlmost all brokerage firms have an "arbitration" clause in the customer agreement. Therefore, you have probably waived your right to go to court and you must arbitrate your case. Arbitration is usually quicker and less expensive than filing a lawsuit, but it does not always work out that way.

Most investor arbitrations take place under the rules of the FINRA. After your attorney files a Statement of Claim, which contains a description of your claims and the facts that support them, and submits the requisite filing fees and hearing session deposit, FINRA will serve the Respondents with your complaint.

Once you have filed your claim, the FINRA will attempt to serve it on the Respondents, who have 45 days to file their responses. After that, the parties usually draft and serve each other with requests for information and documents that are relevant to the case. There are no depositions permitted.

Most claims can be decided by a panel of three arbitrators, one of whom is always a stockbroker or other member of the securities industry. The other two members of the panel are "public" arbitrators (i.e. people not associated with the securities industry).

If, before the hearing on the merits, any disputes arise, or a party requests a ruling on a motion, the arbitration panel may hold one or more pre-hearing conferences, usually by conference telephone call.

Finally, the hearing dates are scheduled, usually about 12 to 24 months after the claim is filed. The hearing is usually held at the hearing location of the FINRA that is closest to the residence of the customer at the time the dispute arose. The arbitrators, the parties and their lawyers or other representatives sit around a table with a tape recorder on it. The parties or their lawyers will usually have submitted briefs containing their factual and legal arguments before the hearing.

After any pre-hearing motions are decided, the parties or their representatives make opening statements, and the claimant puts on his case by calling witnesses, testifying himself, and offering exhibits. As in a trial, all the parties have the right to cross-examine each other's witnesses and, with the permission of the panel, conduct redirect examination. In addition, the panelists may ask their own questions. While the panel does not have to follow the rules of evidence, they sometimes do. After the claimant is finished presenting his or her case, the respondents have their turn. Then all parties have a chance to make closing arguments.

The hearing can take anywhere from one day to several weeks. After the conclusion of the hearings, the arbitration panel decides, just like a judge would in court, if the respondents were at fault and how much they must pay for their misconduct. Approximately thirty days later, the FINRA will publish the arbitration panel's decision in the form of an "award." If the investor wins an award, the member firm or associated person must pay it promptly or face disciplinary action (unless a Motion to Vacate if filed).

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The Arbitration Process

A method of having a dispute between two or more parties resolved by impartial persons who are knowledgeable in the securities areas in controversy.

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How Much Can You Recover

The most basic remedy is damages for out-of-pocket losses. The out-of-pocket loss is generally the amount of money invested minus the returns and the residual value of the investment. The out-of-pocket measure is also generally the smallest measure of damages, so it is important not to limit yourself to it. In addition to out-of-pocket losses, an investor may be awarded damages based on the profits he would have made had the wrongful act not occurred. These lost profits are recoverable in many cases but it is very fact specific to each case. Arbitrators and courts have the power to award punitive damages and may do so where the facts warrant them and they are satisfied that there is an adequate basis in law to do so. Punitive damages may be any amount and they are to punish the wrongdoer and to deter future misconduct. Arbitrators and courts may also award attorneys' fees in an appropriate case. The most common basis for an award of fees is either by contract or statute. For example, some customer agreements have an attorneys' fee provision in the investor's account agreement. In addition, certain states, such as Florida, have statutory provisions that allow attorneys fees to be awarded in certain securities cases.

Of course, the fact that a particular kind of damages may be available does not necessarily mean that you will be able to convince the arbitrators, court, or jury to give it to you. However, since we are experienced investment attorneys, we will request that the panel award all appropriate damages.

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How Much Will It Cost Me

If you decide to go forward with FINRA arbitration, the costs and expenses fall into 2 categories -- attorneys' fees and costs.

1. Attorneys' Fees

Our law firm will first provide you a free case evaluation. Then, if we believe you have a claim, we handle most cases on a contingency fee basis. This means that if no money is recovered from your claim, you will owe NOTHING to the law firm for attorney's fees. However, if there is money recovered, the client agrees to pay the law firm a fee from the gross proceeds of any recovery. The fee is typically between 33.3% to 40% - depending on the facts and circumstances of your particular case.

2. Costs

If there is no recovery, then the client does not have to reimburse the law firm for the costs it has incurred. The costs and expenses are separate and apart from the attorneys' fees. The law firm will advance some of the costs; however, if there is a settlement and/or judgment amount, then the law firm will be reimbursed the costs it has advanced the client from the proceeds of the settlement or award.

Remember, the law firm will not invest its time and money in a case unless we truly believe you have a good case.

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