FAQ on Securities Arbitration

What Do I Need to Know about Securities Arbitration?

These are some of the basics that every investor should know about the securities arbitration process. For specific advice about your situation, contact a lawyer at Dimond Kaplan & Rothstein in Miami or West Palm Beach.

What is arbitration?

Arbitration is a private form of dispute resolution that is meant to be faster and more efficient than state or federal court litigation.

Do I need to take my stockbroker liability claim to arbitration?

Almost certainly. Brokers and brokerage firms routinely require investors to sign agreements that make arbitration the exclusive forum for disputes between the investor and the stockbroker or brokerage firm. In other words, you usually cannot file a complaint in court to recover your investment losses.

Who decides securities arbitration cases?

Most arbitration claims are administered by the FINRA — the Financial Industry Regulatory Authority, the entity created by the merger of the NASD and the New York Stock Exchange. If your case involves more than $50,000, it will be heard by a three-member panel of arbitrators, one of whom will have securities industry experience. The other two arbitrators will have no connection to the securities industry. They often are lawyers, accountants, retired judges, or business owners. Smaller claims will be determined by a single arbitrator. The arbitration panel hears evidence and decides your case. There is no jury.

How does arbitration work?

An arbitration proceeding is initiated by filing a Statement of Claim on behalf of the aggrieved investor, known as the "claimant." The broker or brokerage firm, known as the "respondent," files an Answer admitting or denying the allegations of the Statement of Claim.

Each side then obtains information from the other in a process known as discovery. The documents disclosed by the brokerage firm in this process will reveal information about the broker's disciplinary record, the brokerage firm’s supervisory activity over the broker, research reports about the investments at issue, and other information that can help establish your claim. Importantly, there generally are no time-consuming and expensive depositions in securities arbitration proceedings.

The trial of an arbitration case is known as a final hearing and often last three to five days. Witness testimony and documentary evidence is presented to the arbitration panel, and the lawyers argue about the conclusions to be drawn from the evidence.

Can my case settle prior to the final hearing?

Yes. Although we cannot predict the outcome of any given claim against a stockbroker or brokerage firm, the vast majority of claims brought by investors are settled on favorable terms prior to the final hearing. Of the cases that go to final hearing, about 50 percent are decided in favor of the investor.

Many cases are also settled through voluntary mediation, a step that can help the parties develop a strong sense of the relative strength of their own positions. In mediation, a neutral mediator approved by the investor and the brokerage firm facilitates settlement, but does not rule on disputed issues or make any binding decisions.

Where does the arbitration take place?

Final hearings generally take place at a FINRA-designated location near the investor's residence. Because final arbitration hearings can take place in about 50 United States cities, as well as in London and Puerto Rico, it seldom is necessary for an investor to travel a long distance for effective participation.

What are some of the important differences between arbitration and court proceedings?

There are some significant differences, the most important of which is the final nature of the arbitration decision. Unlike court cases, which permit you to appeal decisions made by the trial court or jury, it is very rare to find a basis for overturning the arbitrators’ ruling. Arbitration is also private and closed to the public. Additionally, the discovery and evidentiary rules in arbitration are more limited than court litigation, and each side will often have less information available than is typically the case in a state or federal lawsuit.

How does my lawyer get paid?

At Dimond Kaplan & Rothstein, all initial consultations on stockbroker and brokerage firm liability claims are free of charge. We accept most cases on a contingency-fee basis, which means that we do not get paid unless and until we recover money for you. And when we do get paid, our fee is a percentage of the money that we recover for you. We also are willing to handle stockbroker and brokerage firm misconduct cases on an hourly basis or on a hybrid of a reduced hourly fee and a reduced contingency fee.

To learn more about our experience with securities arbitration, contact one of our attorneys in Miami or West Palm Beach.