Arbitration is an alternative dispute resolution process. It’s “alternative” to a court case which is heard by a judge and/or a jury. An arbitrated case is where a panel of one to three impartial people hears the evidence and reaches a decision regarding your claim for losses. Lots of disputes in the United States are required to be arbitrated: credit card disputes, car loans and leases, and many employment and consumer contracts, for example. These disputes are run through commercial arbitration companies like AAA or JAMS.
Securities arbitration is the only way to resolve disputes between investors and their brokers and brokerage firms. This is because of a 1989 Supreme Court case that held that brokerage firms could put arbitration clauses in their Customer Agreements, forcing investors to arbitration instead of court. Since brokerage firms love arbitration, they all immediately changed their Agreements; you can’t open a brokerage account in the United States today without agreeing to arbitrate any dispute you might have. Under FINRA arbitration rules, an arbitration hearing takes place in a FINRA or hotel conference room with each party, their securities arbitration lawyers, expert witnesses, and the arbitrators. However, unlike a court trial which the public can easy attend to watch, nobody is allowed inside a securities arbitration except the parties, the lawyers and the arbitrators. The presentation of the case is every much like a court trial: each lawyer gives an opening statement telling the arbitrators what they intend to prove and then each side presents their evidence by calling witnesses, presenting documents, and presenting closing statements. Usually, securities arbitrations last five days, because of the number of witnesses – there is the investor and the broker and often other factual witnesses, and each side has an expert witness to present – all of which take up time. And, of course, the lawyers argue about various issues throughout the case.
The arbitrators don’t announce their decision at the arbitration, likely so that the parties don’t get into fisticuffs. Under the FINRA arbitration rules, the arbitrators must issue their Award within 30 days after the completion of the hearing. The Award is sent to FINRA, not the parties, and sometimes it sits on FINRA’s desk for too long.
The good news is that brokerage firms must pay the Awards within 30 days of receipt lest they be put out of business by FINRA! That is certainly strong incentive to pay and one of the primary benefits to the investor of arbitration over court. In a court case, if the investor won a big amount, invariably, the brokerage firm would appeal the decision. And in court, a party can appeal on a wide variety of grounds; it doesn’t take much. Not so in a FINRA arbitration, as the allowable grounds to appeal are very, very narrow. In my 20 years representing investors, I’ve only had one arbitration award appealed and my client won the appeal, by the way.
Contact Ms. Stoneman for more information about taking your concern to arbitration.