Resolving Investor and Broker/Dealer Disputes

FINRA - Chess MatchSecurities disputes are traumatic. The loss of investment capital can be devastating whether one is a sophisticated investor in search of capital appreciation or a retail customer looking for a safe haven for retirement funds.

The subprime real estate meltdown, an accompanying sharp decline in securities valuations, and a host of well-publicized, questionable (in some cases illegal) business practices in the financial markets resulted in systemic economic dislocations. The so-called “Great Recession” brought into sharp focus individual investor risk of loss as well as a sharp increase in customer and broker/dealer disputes.

The Financial Industry Regulatory Authority (FINRA), the successor to the National Association of Securities Dealers, Inc.’s (NASD), is the non-governmental, self-regulatory organization regulating New York Stock Exchange brokerage firms and the exchange markets. FINRA monitors 6 billion share trades a day. With 20 offices across the United States and 3,400 employees, the Authority writes and enforces rules governing more than 4,145 securities firms and 636,290 brokers.

FINRA’s dispute resolution forum is the largest in the country for the securities industry, handling nearly 100 percent of securities-related arbitrations and mediations from more than 70 hearing locations—including at least one in all 50 states, London and Puerto Rico.  Its District 7 Office in Boca Raton covers Florida, Puerto Rico, Panama, and the Virgin Islands.

In 2012, FINRA referred 692 fraud cases for prosecution, and levied $102 million in fines and restitution against fraudulent traders.  Through November 2013

4,181 arbitration cases were resolved (18% after hearing; 5% after document review; 52% by parties’ settlement; and 10% in mediation) and 3,342 new cases were filed. During the same period, 513 mediation cases were closed (80% of which settled) 451 new disputes filed.

The following Tables reflect FINRA’s latest dispute resolution statistics.

Arbitration Cases Served by Controversy Involved

Type of Controversy1

2009

2010

2011

2012

November 2013

Margin Calls

128

83

80

68

46

Churning

306

270

236

245

219

Unauthorized Trading

478

397

288

313

240

Failure to Supervise

2,691

2,372

2,007

1,657

1,364

Negligence

3,405

2,698

2,249

1,941

1,570

Omission of Facts

2,453

1,941

1,603

1,355

1,128

Breach of Contract

2,802

2,184

1,904

1,573

1,300

Breach of Fiduciary Duty

4,206

3,162

2,589

2,216

1,728

Unsuitability

2,473

1,974

1,619

1,354

1,144

Misrepresentation

3,408

2,601

2,102

1,769

1,398

1 Each case can be coded to contain multiple controversy types.   Therefore the columns in this table cannot be totaled to determine the number   of cases served in a year.

Security Types Involved in Arbitration Cases

Type of Security1

2009

2010

2011

2012

November   2013

Corporate Bonds

373

239

179

124

79

Certificates of Deposit

71

41

31

31

30

Mutual Funds

1,556

863

652

392

289

Options

275

161

161

151

106

Common Stock

1,367

862

838

736

511

Limited Partnerships

73

80

104

70

79

Annuities

300

208

172

147

113

Preferred Stock

481

232

197

112

81

Variable Annuities

300

279

212

220

165

Derivative Securities

607

228

54

8

0

Auction Rate Securities

276

149

80

58

27

1 Each case can be coded to contain multiple security types. Therefore the columns in this table cannot be totaled to determine the number of cases served in a year.

As an alternative to litigation, FINRA arbitration, generally confidential, proceeds with the convening of a panel comprised of one or three arbitrators selected by the parties. Each party, either represented by counsel or proceeding pro se, submits written pleadings to the arbitrators setting his or her claim or defense. After considering the pleadings, the panel will consider any documentary evidence and under oath testimony at a formal hearing. Thereafter, the arbitrator or arbitrators, as the case may be, will issue a formal award that is binding on the parties. The prevailing party can then submit the award to the appropriate court for enforcement. And, unless challenged on very limited grounds, the court will not overturn the award.

Arbitration cases are eligible to be heard in FINRA’s forum if the following criteria are met:

  • For disputes with investors:
    • The cases involve an investor and an individual or entity registered with FINRA, such as cases between investors and brokers, between investors and brokerage firms, and between investors and brokers and brokerage firms; and
    • The claim is filed within 6 years from the time the events giving rise to the dispute occurred.
  • For disputes involving industry parties only:
    • The cases involve an individual or entity registered with FINRA, such as cases between brokerage firms, between brokers, and between or among brokerage firms and brokers; and
    • The claim is filed within 6 years from the time the events giving rise to the dispute occurred.

An investor must arbitrate at FINRA if:

  • The arbitration is required by written agreement;
  • The dispute is with a member of FINRA, which could be a broker and/or brokerage firm; and
  • The dispute involves the securities business of the broker and/or brokerage firm.

A broker or a brokerage firm must arbitrate at FINRA if:

  • The dispute arises out of the securities business activities of a broker and/or a brokerage firm; and
  • The dispute is between or among the following members of FINRA: brokerage firms, brokerage firms and brokers, or brokers.

If an investor requests arbitration, a broker or a brokerage firm must arbitrate at FINRA.

Either during or as an alternative process and by mutual agreement, the parties may submit their dispute to mediation. In such case, FINRA staff facilitates the mediation process and provides a roster of qualified mediators from which a mediator is selected to facilitate the parties’ discussions towards a mutually agreeable resolution. Mediation is confidential and non-binding until resolution.

For more information, please visit www.finra.org and contact:

Carl H. Perdue

Senior Counsel and Partner

ASSOULINE & BERLOWE, P.A.

1801 N. Military Trail, Suite 160

Boca Raton, Florida 33431

Main:  (561) 361-6566

Fax: (561) 361-6466

Email: CHP@assoulineberlowe.com

http://www.assoulineberlowe.com/

Intellectual Property, Labor & Employment Law, Bankruptcy, Commercial Litigation, and Corporate Law

Miami • Ft. Lauderdale • Boca Raton

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Filed under Business Litigation, Corporate Law, International, International Arbitration

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