The Definitive Guide to Securities Arbitration and Mediation

If you decide to use FINRA’s dispute resolution process to resolve a dispute with a broker or financial firm, you have two options, arbitration and mediation.

When investors have a dispute with a brokerage firm registered with FINRA that cannot be settled through mutual agreement or outside settlement, the case may be arbitrated or mediated through FINRA’s dispute resolution forum, which includes both arbitration and mediation.

Securities arbitration and mediation have been found to be much faster, less expensive, and less complex than litigation when it comes to resolving financial disputes between investors and brokers, financial advisors, or brokerage firms.

However, there are significant differences between these two methods of dispute resolution that may affect your decision to pursue one or the other. Keep in mind, however, that FINRA does not actually decide securities arbitration or mediation cases. It purports to be a neutral forum and cannot offer legal services or advice to investors, brokers, or other parties.

Securities Arbitration…

• Is much like a simplified and streamlined version of a regular court hearing
• Is usually faster, cheaper, and much less complex than regular litigation
• Takes nine to eighteen months to resolve, on average
• Is decided by a panel of one or more arbitrators
• Is generally confidential, so documents submitted are not publicly available in most cases
• Can result in a binding financial judgement, called an “award”
• Results in about 40% of claimants being awarded damages

How securities arbitration works

File a claim: Securities arbitration begins when you or your securities attorney files a statement of claim with FINRA, which states the amount in dispute, the facts of your case, and any supporting documents. There may be fees associated with the initial filing and these partly refundable and non-refundable. It may be possible to have the fee waived if you are in significant financial need. You may also be able to request an expedited hearing if you are elderly or have a serious medical condition.

Answer a claim: Once FINRA has informed the respondent (the broker, advisor, or firm you are filing against) about the hearing, they have 45 days to research the claim and respond. Based on the information the respondent sends to FINRA, they will see if there are any counterclaims, or claims that respondent has against you, the former client, or cross claims, which are claims against another respondent.

Arbitrator selection: Before arbitration begins, FINRA will provide a list of eligible arbitrators to both parties. FINRA will provide reports about each arbitrator’s background and career experience. Both parties can strike arbitrators names from the list and rank the arbitrators they would like in order of preference.

Prehearing conferences: Prior to the hearing, the arbitrators and parties will have the Initial Prehearing Conference (IPHC), which is a phone conference where the arbitrators will determine whether mediate schedule will be set including evidentiary hearing dates, discovery deadlines, briefing and motion deadlines. to schedule hearing dates and resolve any preliminary issue.

Discovery: This is the process through which the parties involved in the claim obtain facts and information from one another in order to prepare for and support their own case for the hearing.

Hearings: These are in-person meetings where both parties present their arguments and evidence in support of their cases.

Decision and awards: Once the hearings are complete, the arbitrators deliberate the facts and give a written decision, called an award. This award is binding, just like it would be from a judge in a court case.

Securities Mediation…

• Is completely voluntary, so either party can reject settlement proposals and stop the proceedings at any time
• Is an informal process in which a trained, neutral mediator facilitates negotiations between the two parties
• Is not binding until both parties reach and sign a settlement agreement
• Results in a settlement more than 80% of the time

How securities mediation works

Initiate a mediation: You or your attorney files a request for mediation. If you’re already involved in an arbitration, you can request a mediation session at any time before the arbitrator issues an award. You can also try meditation before deciding whether to take a case to arbitration.

Mediator selection: Much like in arbitration, FINRA will provide both parties a list of potential mediators as well as provide reports about the career history of each mediator on the list. Unlike arbitration, both parties must agree to a meditator before the mediation session begins.

Mediation sessions: Both parties must agree to arrangements for the mediation, which can be conducted in-person, by phone, or through video conference. Mediations generally take a single day and are scheduled at a time and place convenient for both parties. Both parties may be represented by an attorney.

Settlement: The majority of FINRA mediations are resolved with a settlement between the parties. While mediation is non-binding, the settlement agreement signed by both parties is final and enforceable. The parties involved in the mediation are responsible for recording the settlement in writing once an agreement is reached. The mediator can help with this process and the agreement can be formally finalized at a later date. FINRA does assist parties with enforcement of settlement agreements.

Impasse: If the parties decide not to settle or resolve only part of the mediation case, you do have the right to file an arbitration claim, proceed with your existing arbitration case, or reinstate a suspended arbitration case.

If you have any questions about the FINRA dispute resolution process, think you have been defrauded by a broker, financial advisor, or financial institution, or want to know your rights as an investor, contact Silver Law Group for a no-cost consultation today.

Scott Silver is the current co-chair of the Securities Financial Fraud Group of the American Association of Justice (AAJ) and recently published A Guide to Securities Arbitration in Trial Magazine.