The Arbitration Process

A. Most Claims Must Be Submitted to Arbitration

B. What Is Arbitration?

C. Who Decides Arbitration Claims?

D. Similarities to Court Proceedings

1. Pleading Requirements
2. Document Discovery
3. The Final Hearing

E. Differences from Court Proceedings

1. Limited Discovery
2. Limited Right to Appeal
3. Arbitrators Decisions Often Provide No Explanation for the Ruling
4. Arbitrations are Private Proceedings

F. How Long Will the Arbitration Process Take?

G. Where Does the Arbitration Take Place?

H. How Does DKR Get Paid?

I. Mediation

1. What is Mediation and How Does it Differ From Arbitration?

A. Most Claims Must Be Submitted to Arbitration

Brokerage firms require clients to sign new account forms when they open accounts. In most circumstances, these documents contain a clause that requires clients to pursue claims against the brokerage firm through a private arbitration proceeding rather through a lawsuit filed in the public court system. This requirement to arbitrate client/broker disputes has been upheld by the U.S. Supreme Court. Arbitration claims primarily are filed with and administered by the NASD or the NYSE, both of which are organizations controlled by the securities industry.

B. What Is Arbitration?

Arbitration is a form of dispute resolution that was designed to be faster and less expensive than the public court system. In the past several years, however, because of the number of arbitration of claims that have been filed and because of defense strategies used by many brokerage firms, the time and expense of arbitration has been increasing. Notwithstanding the recent increase in time and cost, arbitration generally remains faster and less expensive than court proceedings. Arbitration proceedings are similar to court proceedings in some respects and dissimilar in others.

C. Who Decides Arbitration Claims?

Where the claimant’s losses are greater than $50,000, a panel of three impartial arbitrators presides over the case. At least one of the three arbitrators will have securities industry experience, and the other arbitrators typically are lawyers, accountants, or other professionals. Cases valued at $50,000 or less are heard by a single arbitrator who has not worked in the securities industry. Arbitrators serve as both judge and jury in arbitration proceedings. In other words, the arbitrators hear and weigh all evidence and make all rulings. After the close of the final hearing, the arbitrators have 30 days to issue a decision.

D. Similarities to Court Proceedings

1. Pleading Requirements

To commence an arbitration proceeding, a complaint, known as a Statement of Claim, is filed on behalf of the aggrieved investor (the “claimant”). The broker or brokerage firm (the “respondent”) that is accused of wrongdoing then files an Answer in response to the statement of claim. Respondents in NASD arbitration proceedings must file an Answer within 45 calendar days of their receipt of the Statement of Claim. NYSE arbitration proceedings require that the Answer be filed within 20 business days of the respondent’s receipt of the Statement of Claim.

2. Document Discovery

Similar to court proceedings, parties in arbitration are permitted to request and obtain relevant documents from the opposing party. For example, among other things, claimants generally are required to produce to the respondent their brokerage account statements, tax returns, personal net worth statements, and correspondence with the broker or brokerage firm. Brokers and brokerage firms generally are required to produce documents reflecting the brokerage firm’s supervision over the broker as regards the claimant’s account, the broker’s disciplinary history, other complaints brought against the broker, and research reports concerning the investments that were sold to the claimant. For a complete list of documents that are considered presumptively discoverable in NASD arbitration proceedings involving customer disputes, go to the NASD’s website at:|
http://www.nasdbrokercheck.com

3. The Final Hearing

Similar to court proceedings, arbitrations ultimately involve trials, which are known as final hearings. During the final hearing, the lawyers for the parties take testimony from various witnesses, including the claimant, the broker, the broker’s supervisors, and financial experts. The lawyers also submit documentary evidence. This testimony and documentary evidence is heard and weighed by the arbitrators appointed to the case.

E. Differences from Court Proceedings

1. Limited Discovery

Unlike court proceedings, the parties in arbitration generally are not permitted to take depositions of witnesses prior to the final hearing. As such, more often than not, the first time you learn the substance of what a broker or a broker’s supervisor will say is at the final hearing. Of course, candid factual disclosures by the claimant to their lawyer, the experience of the lawyer, and the careful review of documents produced by the broker and brokerage firm provide insight into what the broker’s and brokerage firm supervisor’s testimony will be.

2. Limited Right to Appeal

Court proceedings provide numerous rights of appeal. This means that decisions issued by a trial court judge can be appealed to appellate courts for a reversal or alteration of the trial court decision. In arbitration, however, arbitrators’ decisions are considered final and binding. Arbitration awards are only subject to review by a court in very limited circumstances. As such, more often than not, arbitration is the claimant’s one and only chance to recover investment losses.

3. Arbitrators Decisions Often Provide No Explanation for the Ruling

Final decisions in arbitration, known as Awards, are not required to contain any factual finding or legal reasoning. In other words, arbitrators are not required to provide any explanation for their decisions to deny claims or award money to claimants.

4. Arbitrations are Private Proceedings

Unlike courtroom proceedings, arbitration proceedings are not open to anyone who is not a party, a corporate representative of a named party, or an attorney for a party. As such, there is a significant level of privacy afforded parties to an arbitration proceeding.

F. How Long Will the Arbitration Process Take?

Arbitrations typically take 12 to 18 months to be completed from the time a Statement of Claim is filed through the time of the final hearing. In many instances cases are settled before the final hearing takes place, thereby decreasing the length of time that it takes to recover lost savings.

It can take anywhere from several days to several months, however, between the time a client retains an attorney and when a Statement of Claim is filed. The length of any delay in filing the Statement of Claim often is the result of claimants not providing their lawyers with all monthly account statements. In some instances, it is difficult to determine whether a client has a valid claim if the client’s lawyer is not able to review every monthly account statement. And in many instances, it is difficult to determine the amount of investment losses that should be claimed in the Statement of Claim if the lawyer is unable to review all monthly account statements. As such, it usually is important to review and analyze all of a client’s monthly account statements prior to filing a Statement of Claim. In those instances where a claimant did not maintain all of their monthly account statements, their lawyer first needs to request that the brokerage firm provide them with copies of the statements. In most circumstances, once all account statements are received and analyzed, a Statement of Claim can be filed.

G. Where Does the Arbitration Take Place?

Most final hearings take place either in the state where the claimant lives or in the state where the brokerage account in question was maintained. The NASD, where the vast majority of securities arbitration claims are brought, maintains final hearing sites in approximately 50 cities throughout the United States, as well as in London, England and Puerto Rico. The NYSE maintains final hearing sites in 46 cities throughout the United States.

H. How Does DKR Get Paid?

All initial consultations are free of charge. If DKR is retained to represent a client in a securities arbitration or litigation, all such matters are handled on a purely contingency-fee basis. That means if the Firm does not recover money for a client the client does not pay any attorneys’ fee to DKR. If DKR is successful in recovering money on behalf of a client, however, DKR receives as its fee a percentage of the money that was recovered.

I. Mediation

1.What is Mediation and How Does it Differ From Arbitration?

Mediation is an informal, voluntary process that can take place at any time before or after a case is filed. An impartial person (the “mediator”) who is agreed to by both parties serves as an intermediary to assist the parties in their attempt to reach a mutually acceptable settlement of the claims brought by the claimant against the brokerage firm. The mediator cannot require the parties to settle, but simply helps the settlement discussions remain focused and productive. Moreover, by agreeing to mediate a dispute, the parties cannot be required to reach a settlement.

• Benefits of Mediation

• Control - The parties control the outcome of their case in mediation rather than leave the ultimate result of their case in the hands of the arbitrators.

• Lower Cost – Resolving a case through mediation can avoid the costs and expenses associated with taking a case through final hearing. These avoided costs and expenses can include thousands or tens of thousands of dollars associated with court reporter bills, NASD or NYSE forum fees, expert fees, final hearing exhibits, and travel.

• Low Risk – Because the parties control the outcome of mediation, a settlement through mediation eliminates the risk of arbitrators issuing an unfavorable award in your case.

• Swift Resolution – Most mediations are completed in one day.