Arbitrating Stockbroker Cases

An investor still reeling from the monetary loss and emotional blow caused by misconduct by a stockbroker likely won’t relish the thought of heading to the courtroom. Stockbroker cases that result in civil litigation, however, can drag on for years and easily rack up many thousands of dollars in legal fees. Depositions, travel expenses and expert witness compensation can add to the toll.

Most stockbroker claims are actually required to be handled in arbitration under the terms of standard customer agreements. Most arbitration provides a binding resolution to the dispute in a more timely (an average of 11.5 months versus the several years usually seen to complete a lawsuit) and cost-effective manner, but it is a specialized form with some disadvantages compared to litigation in a courtroom.

How Does Arbitration Work?

Stockbroker arbitration cases are kicked off by submitting an "Initial Statement of Claim" to the Financial Industry Regulatory Authority (FINRA), the governing body overseeing the activities of securities and investment firms. The stockbroker/brokerage house is notified of the complaint and given 60 days to respond. Once both sides have been given a chance to state their preliminary "case," an initial prehearing conference occurs with one of three arbitrator(s) selected from a list of FINRA arbitrators. Typically, these arbitrators are attorneys or former judges who have intimate knowledge of the financial industry.

At the prehearing conference, procedural matters are addressed. However, the right in court to obtain testimony of the other side’s witnesses is denied in arbitration and access to documents can also be more limited. Prior to the general hearing, settlement attempts are often ongoing, but if no settlement can be reached independently between the parties, each side presents their case to the arbitrator or arbitration panel, who, after two to three days of evidence and testimony, renders a decision that is legally binding, unlike a court judgment, which can be appealed.

Because an arbitrator’s decision essentially has the same legal force of one handed down by a judge, and thousands of dollars are at stake, it is important to present the best case possible. If you are considering bringing a stockbroker claim, you need to consult an experienced attorney in your area who has experience handling these difficult and complicated matters.