Class Actions v. Securities Arbitration

Class action lawsuits are designed to recover damages for a group or “class” of investors who sustained losses from the same situation or investment. Many individual investors participate in class action lawsuits because the size of their loss is too small to merit an individual claim or the investment at issue was not held with a full-service brokerage firm.

While a class action lawsuit may help a group of investors with smaller losses, the larger an individual investor’s losses, the more likely a FINRA securities arbitration claim would be the better alternative. As the investment losses increase the better and more cost-effective that securities arbitration becomes for an individual investor. Also an individual FINRA securities arbitration claim may result in a larger recovery of investment loss for the investor.

Securities arbitration is frequently a better option for bringing a claim than a class action for investors because the arbitrators are better able to focus on the unique claim of the individual investor and the recovery is frequently greater due to this. Many investors choose to pursue securities arbitration claims with the Financial Industry Regulatory Authority (FINRA) which allow claims for damages on all investment losses in an account instead of on just one investment. Ultimately, FINRA securities arbitration claims will proceed faster than class actions and will have limited costs for an appeal.

An investor who is already part of a class action against a company may also pursue a FINRA arbitration claim against the brokerage firm or investment bank which acted as the client’s advisor. The investor has potentially different claims against each of these parties and can have multiple avenues of recovery.

FINRA is the regulatory organization responsible for the regulation and resolution of disputes between investors and their brokerage firm. FINRA has established sales practice rules and regulations which govern duties and responsibilities for financial advisors and brokerage firms when interacting with investors. FINRA arbitration claims can be filed when there is a violation of a FINRA rule or standard by a FINRA member and/or in the case of misconduct by a FINRA registered entity or individual. A FINRA securities arbitration claim may consider a longer period of time than a class action lawsuit which may allow for greater alleged damages due to the mishandling of an investor’s account. The FINRA securities arbitration process is generally more expeditious and less burdensome than a class action lawsuit.

An individual securities arbitration claim would look at the facts specific to the individual investor and would take into consideration all of the investments in the brokerage account. The arbitration claim would also look at multiple factors including the investor’s investment objectives, time horizon and risk tolerance, among others.

Silver Law Group has extensive experience advising clients regarding their options about participating in a class action or a FINRA securities arbitration claim. There are advantages to both options, depending on the factual scenario in which they arise and Silver Law Group has the knowledge and experience to advise clients as to which option would best suit their legal interests.