Phoenix Securities Litigation Attorneys

Because most brokerage firms include such binding arbitration agreements in their customer account agreements, investment related disputes are routinely handled through arbitration. While there are several arbitration forums that administer securities and investment disputes, the majority of those cases are administered by the Financial Industry Regulatory Association (“FINRA”), a self-regulatory body of the securities industry promulgated by federal law. Several thousand new investment arbitration cases are filed before FINRA each year.

Investor claims in arbitration are initiated by the filing of a statement of claim with the FINRA’s Office of Dispute Resolution. The statement of claim is required to state the facts of the claims and the legal remedies sought. The statement of claim is then served upon the respondents by the FINRA. Under current arbitration rules, respondents have 45 days in which to submit a written answer to the statement of claim. Similar to the statement of claim, the answer must specify all of the pertinent facts and defenses asserted by the respondents.

Discovery (or information gathering and sharing) is done through requests for production of documents and for information. Generally, there are no depositions in arbitration. FINRA has published a discovery guide (FINRA Notice to Members 99-90) which provides a list of presumptively produced documents by both sides. See FINRA Discovery Guide.

It typically takes nine to twelve months from the time an arbitration statement of claim is filed for the case to be heard in a formal arbitration hearing. At the arbitration hearing, the cases are presented much like a court trial, however, they are presented to, and decided by, a panel of three arbitrators. The arbitration panel in a customer dispute includes one member of the securities industry (usually a broker or brokerage office manager), and two non-members (who are often lawyers, accountants, or business persons). While it varies from case to case, a securities arbitration hearing generally lasts between two to five days in duration. One of the non-industry arbitrators is designated as the Chairperson. The Chairperson is often, but not always, an attorney, so that he or she can handle evidentiary objections in the hearing.

Behind the private, closed-doors of arbitration, the legal process can often be confusing and sometimes daunting to investor participants. For example, in arbitration, pre-trial discovery, depositions, and other court like discovery procedures are generally unavailable or severely limited. Although this can be a cost saving for the client, it means that a significant part of the “discovery” in the case actually occurs during the arbitration while the witnesses are testifying. To be effective in securities arbitrations require strong familiarity with securities industry practices, and securities rules and regulations, that might apply to given fact patterns that come out in the evidence presented at hearing.

Further, an arbitrator in a securities arbitration is both the judge and the jury. The arbitration process can far too often be somewhat unstructured and at its worst, a guessing game. Whereas in the courtroom the evidentiary rules and regulations as to testimony and documents is extremely regulated, in arbitration the rules are less formal and left up to the discretion of the arbitration panel. Therefore, arbitration panels hold significant power over not only individual rulings, but the progression of the entire arbitration. Without experienced securities counsel representing the investors, the potential for abuses in the process is reduced. The vast majority of the arbitrators for FINRA and New York Stock Exchange are intelligent, diligent, and well-meaning individuals. Nevertheless, making the right decisions in the arbitrator selection process is an extremely important function for the lawyer and the clients to work through together. This is a critical process that Mr. Mitchell has extensive experience in guiding his clients through.

At the conclusion of the arbitration hearing, the panel deliberates in private, and then notifies FINRA of its decision. It generally takes between three to six weeks from the conclusion of the arbitration hearing until the award is prepared, signed, and served upon the parties or their counsel.

Because there are generally very limited grounds for appeal of securities arbitration awards, in most cases the awards are paid or otherwise satisfied within a relatively short time by the non-prevailing brokerage firm ordered to pay compensation. Typically, an award will direct that it be paid within 30 days of the date of the award, and often will accrue interest until actually paid.

Because the failure to pay an arbitration award is a violation of FINRA member conduct rules, and will result in the revocation of a brokerage firm’s and/or securities professional’s licenses, payment of the arbitration award is generally obtained without too much difficulty.

Our legal services also include representation of investment professionals in all types of employment disputes with their broker-dealer firm, including disputes over failure to pay compensation or alleged violations of non-compete, non-solicitation and confidentiality restrictions.

All too often, a good stockbroker or other investment professional who has built up his book of business over a number of years, through careful and diligent effort, can find when he transfers firms that their former firm has tied his hands through a variety of contractual arrangements, non-compete agreements, and signing bonuses/employee forgivable loans that severely restrict the broker’s ability to continue servicing his clients or to even change firms. Often the broker who resigns from a firm and attempts to take his clients to another firm finds himself the subject of a temporary restraining order or other court order restricting his contact with their customers. We can often help our broker clients work through those difficult issues, either through litigation or simply negotiation, before the broker’s client base is damaged or destroyed by such tactics.