Frequently Asked Questions

What is the FINRA arbitration process?

The Financial Industry Regulatory Authority (“FINRA”) operates the largest securities dispute resolution forum in the country where investors can file an arbitration claim when they have a dispute involving the business activities of a brokerage firm or one of its brokers. Arbitration is similar to filing a lawsuit in court, but it is typically faster and cheaper than a court case.

An investor initiates an arbitration by filing a Statement of Claim which lays out the basis for the investor’s complaint and the relief being sought. After the brokerage firm or broker receives the Statement of Claim, they are given an opportunity to file an Answer which lays out their “side of the story” and all applicable defenses. Thereafter, the parties select a neutral third party, called an arbitrator, to ultimately resolve the dispute.

The amount of an investor’s claim determines the number of arbitrators and the hearing process. Claims involving more than $100,000 require an in-person hearing decided by three arbitrators. Claims under $100,000 are decided by one arbitrator, while claims under $50,000 can be decided by the lone arbitrator without a hearing and solely on the submitted written materials. After the parties conduct the in-person hearing before the arbitrators (which is similar to a trial, but less formal), the arbitrators issue the decision, called an award.

Why must an investor file arbitration with FINRA instead of with court?

Most brokerage account agreements contain pre-dispute arbitration clauses which preclude customers from pursuing nearly all their investment-related claims in court. Instead, the agreements require customers to pursue their claims against the brokerage firm in binding arbitration, typically in FINRA’s dispute resolution forum. If you choose to file a lawsuit in court instead of arbitration with FINRA, the brokerage firm can petition the court to enforce the brokerage account agreement and compel the matter to arbitration.

How long does the FINRA arbitration process take?

Each case is different, but it can typically take approximately 15-18 months from the date the Statement of Claim is filed to conduct an in-person hearing and for an award to be determined.

Can a case be settled prior to the arbitration hearing?

Yes. A matter can be resolved by the parties at any time prior to (or during) the FINRA arbitration hearing. There is no requirement that the parties must proceed with the arbitration hearing if they reach a settlement. Often times, disputing parties will attend mediation where they engage the services of a trained, impartial mediator to assist the parties in finding a mutually agreeable solution. Mediation is a voluntary process.

Can a party go to court for a new trial if they do not like the arbitration award?

No, the arbitrator’s decision is final and binding. By agreeing to arbitrate a claim, a party cannot have the same matter decided by a court of law. However, a party can seek to have a court vacate a FINRA arbitration award (similar to an appeal), but the grounds to do so are very limited.

What red flags might indicate that an investor has been the victim of investment fraud?

While it is often quite difficult for an investor to determine if he/she has been the victim of investment fraud, an investor may want to speak with a trained securities attorney if they see any of the following red flags in their account:

  • There is unusual trading activity in the account (such as the number of trades or the type of securities purchased);
  • The customer reviews monthly statements and does not recall discussing the securities in the account before the trades were executed;
  • The broker is non-responsive to a customer’s contact attempts to discuss the portfolio, especially if the portfolio is not performing well;
  • The overall market is performing well, but the investor's investments are losing money;
  • The broker fails to disclose the risks and fees (including his/her commission) associated with a recommended investment; and
  • The broker recommends the same securities to his clients regardless of each customer’s unique investor profile.

What should a customer do if the customer believes they may be the victim of investment fraud?

If a customer suspects that they may be the victim of investment fraud, it is best to contact an experienced securities attorney as soon as possible who can review the trading activity in the accounts and determine if the customer may have an actionable legal claim. The attorneys at Gregory B. Simon Law have significant experience handling investment fraud claims throughout the country. Please contact us for a free, confidential consultation. Most investment fraud claims are handled on a contingency-fee basis.

What is the Central Registration Depository?

The Central Registration Depository (commonly referred to as “CRD”) is the central licensing and registration system used by the U.S. securities industry and the its regulators. It is operated by FINRA. CRD contains the registration records of broker-dealers and their registered individuals including their qualifications, employment history and disclosures. Certain information contained in CRD is viewable by the general public through FINRA’s BrokerCheck website.

If a financial advisor obtains an expungement award, will the CRD disclosure be removed immediately?

In most cases, the CRD disclosure will not be immediately removed after obtaining an expungement award. A court of competent jurisdiction must confirm arbitration awards directing expungement before FINRA will expunge customer dispute information or Form U-5 termination language from the CRD system. However, FINRA currently will take action on, without a court order, expungement directives contained in arbitration awards rendered in disputes between registered representatives and firms in which the arbitration panel expressly states in the award that the expungement relief is being granted because of the defamatory nature of the information.

What is Protocol for Broker Recruiting?

The Protocol is an agreement signed by various broker-dealer firms to allow the broker to take specific client information when leaving a firm. When brokers transition from one firm to another and both firms are signatories to the Protocol, the brokers may take account information that contains the client name, phone number, email address, and account title of the clients that they serviced while at the firm. Advisors are prohibited from taking any other documents or information, including account numbers. Provided that the departing broker and his/her new firm follow the Protocol, neither can have any liability to the broker’s former firm by reason of the broker taking the above-stated information or soliciting clients serviced by the broker at his/her prior firm. To claim protection under the Protocol, departing brokers should provide a written resignation letter to their branch manager and attach a copy of the retained list of information.

Can a promissory note be enforced if a financial advisor is terminated without cause?

Typically, promissory notes require financial advisors to repay the outstanding balance if they leave the firm for any reason at all, whether voluntarily or involuntarily. However, promissory notes may provide for instances where repayment is not required, such as where the termination was due to retirement, disability or a reduction in force. Financial advisors should carefully review the specific terms of their promissory notes.

Does an advisor have to report receipt of a Rule 8210 notice from FINRA on their Form U-4?

FINRA typically issues initial Rule 8210 notices in connection with an informal inquiry that does not have to be reported on your Form U-4. Advisors should let their branch manager and compliance department know if they have received the notice and confirm with the compliance department about the need for any required regulatory disclosures.

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