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Securities, Options and Futures Consultants

Securities Arbitration ...

Under the applicable law and FINRA rules, investor disputes with stock brokers may be heard in state or federal courts or before arbitration panels. However, as a practical matter, the brokerage industry has made binding arbitration agreements a standard part of account agreements so that court room litigation, a generally preferable venue from the investor perspective, is now largely unavailable.

According to these agreements, investor arbitrations typically can take place in either of two forums sponsored by FINRA or the American Arbitration Association, with the vast majority handled by FINRA. Arbitration panels are established by the sponsor’s requirements, which establish the fees, number and credentials of the arbitrators as well as rules relating to discovery, conduct of the hearing, confidentiality and prompt payment of damage awards by members. Securities arbitration expert witnesses are often used in these proceedings. Limited grounds for appeal are set forth under the Federal Arbitration Act.

Damage claims usually include a number of components beginning with the net out-of-pocket loss. To this, investors commonly add such items as gains that might have been otherwise realized if not for the contested broker actions, interest from the loss date to the present and attorney’s fees and expenses. Offsets usually include market losses that would have occurred without regard to action of the broker.

The statute of limitations for claims varies widely depending upon the law under which the claim is made and the rules of the arbitration forum. Some claims require action within two years of their occurrence while others may be pursued within intervals ranging to six years or more. While one should certainly pursue any claims as early as possible, it could be premature to conclude that all such time limitations have expired in any given matter without careful review.

See Compulsory Arbitration: Its Impact on the Efficiency of Markets.