Understanding the Basics of Securities Arbitration

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Arbitrating securities disputes can be a complex process, but it’s important to understand the basics to protect your interests and rights. Securing an experienced lawyer specializing in arbitration is vital to successfully navigating this process. This article will explore what you need to know about understanding the basics of securities arbitration and how it works.

Arbitration is an effective alternative dispute resolution method for resolving claims related to stocks, bonds, mutual funds, commodities and other financial investments. It allows investors to resolve legal matters without going through the traditional court system, which can be more costly and time-consuming.

Knowing the rules governing securities arbitration makes individuals better equipped to make informed decisions.

What is Securities Arbitration?

Securities arbitration is important for resolving disputes between investors and their financial advisors. It’s a way of settling conflicts outside the court system, using industry experts as mediators.

Securities arbitrators are usually attorneys specializing in securities law and understanding the nuances of investments. They listen to both sides of the dispute, review evidence, ask questions and decide who should win or lose the case.

The securities arbitration process begins with filing a claim at FINRA (Financial Industry Regulatory Authority) – the self-regulatory organization responsible for overseeing all aspects of U.S. stock markets.

Investors and advisors can use this service if they disagree over trade execution errors, unsuitable advice, or breach of contract by either side. Both parties must agree to FINRA’s rules before proceeding with arbitration.

How Does Securities Arbitration Work?

Securities arbitration is a process that resolves disputes between investors and their brokers. It is an alternative to going to court, as it can be faster, less expensive and more private than traditional litigation. Here’s how the process works:

  1. An investor files a claim with the Financial Industry Regulatory Authority (FINRA).
  2. FINRA will assign the dispute to a panel of arbitrators with securities law experience.
  3. The parties involved will present evidence at hearings before the arbitrators, including documents and testimony from witnesses if necessary.
  4. After hearing all pertinent information, the arbitrators will decide what should happen for justice to be served fairly for both sides.

The entire securities arbitration process typically takes three months or less to resolve – much quicker than civil lawsuits that can drag on for years.

Additionally, awards issued through this method may involve non-monetary remedies, such as implementing organizational changes or amending industry practices – outcomes not available in traditional courts of law.

Therefore, securities arbitration offers investors quick resolutions and unique options unavailable elsewhere when settling disagreements involving investments and brokers.

Who is Involved in Securities Arbitration?

Knowing who is involved in such cases is important after understanding the basics of securities arbitration and how it works. Generally speaking, securities arbitration involves three main players: investors, brokers/dealers, and FINRA (Financial Industry Regulatory Authority).

Investors are people or entities that purchase stocks with their own money. They can be individuals looking to buy a few shares for themselves or businesses making significant investments for their company.

Brokers/Dealers act as intermediaries between buyers and sellers; they facilitate trades on behalf of investors by providing market advice and executing orders.

Lastly, FINRA is an independent body that regulates financial markets like stock exchanges and ensures that all participants abide by federal laws.

The process begins when an investor makes a complaint against their broker/dealer regarding some form of misconduct or negligence related to the investment process. This complaint is filed with FINRA’s Office of Dispute Resolution (ODR).

The ODR reviews the case to determine if there is sufficient evidence to proceed with arbitration proceedings. If so, both parties will enter into an agreement mediated by one or more arbitrators appointed by FINRA.

During the proceedings, each party presents its argument, relevant documents and testimony from witnesses. After hearing both sides’ arguments, the arbitrator(s) examine all available information before issuing a final decision which serves as binding legal action under U.S. law.

Depending on the severity of the situation, this could involve ordering damages to be paid out or terminating agreements between parties involved in the dispute.

Typical Securities Arbitration Claims

Securities arbitration claims can be complex, but understanding some common types of disputes is a great way to get started.

From disagreements about the sale and purchase of investments to allegations of misconduct by brokers or advisors, these are just a few issues that could lead one party to seek resolution through securities arbitration.

Knowing what types of cases typically fall into this category can help determine if taking your case to an arbitrator is right for you.

One type of claim commonly seen in securities arbitration involves a breach of fiduciary duty. This occurs when someone who controls another person’s money misuses it or fails to act in their best interests — such as making trades without authorization or engaging in self-dealing activities.

When this happens, investors may have grounds for filing a claim against them with an arbitration panel.

Another typical issue addressed through securities arbitration centers around allegations of misrepresentation or fraud by brokerages, financial professionals, or other entities involved in stock transactions.

In these cases, claimants must present evidence showing how they were misled and demonstrate how those misleading statements ultimately caused financial harm. If successful, victims may receive compensation for any losses incurred due to the fraudulent activity.

Finally, securities arbitrations may also involve disputes related to unauthorized trading practices like churning and margin calls.

Churning occurs when a broker excessively buys and sells stocks from their customers’ accounts to generate more commissions for themselves; margin calls occur when clients are required to come up with additional funds due to market changes that affect their portfolios negatively.

Both situations put customers at risk of significant losses and thus warrant legal action via an arbitration forum.

What is the Difference Between Mediation and Arbitration?

Mediation and arbitration are both forms of alternative dispute resolution (ADR) used to settle disputes. They have many similarities but some key differences as well.

The primary difference between mediation and arbitration is that in a mediation process, the parties to a dispute try to come up with a solution, whereas, in an arbitration process, someone else decides what should happen.

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In mediation, a neutral third party, called a mediator, facilitates communication between the two parties so they can reach an agreement on their own terms; however, arbitrators act more like judges by weighing the evidence presented by each side and making a binding decision.

This means that if either party does not agree with the outcome of the arbitration process, it cannot be appealed or overturned without further legal action.

Another essential difference between mediation and arbitration is that while in most cases, either party may end the mediation at any time before reaching an agreement. Once an arbitrator has been appointed, all decisions made by the individual are final.

A successful mediation also is faster than going through litigation because there is no need for discovery or pre-trial procedures. The arbitration may take longer depending on how complex the issues involved are and whether witnesses must be subpoenaed or expert reports commissioned.

In general, mediated settlements tend to cost less than those resulting from court proceedings due to fewer attorneys’ fees paid out and shorter processing times needed.

Additionally, anything discussed during private sessions organized by the mediator remains confidential unless otherwise agreed upon by both parties – something often seen as preferable compared to having one’s personal information exposed publicly when pursuing litigation or taking part in formal hearings associated with an arbitration procedure.

Mediation and arbitration each offer advantages over traditional court proceedings, but choosing which method works best depends mostly on individual circumstances, such as budget constraints and desired outcomes from negotiations.

Ultimately, these two ADR methods provide people with options other than costly litigation for resolving conflicts quickly and efficiently outside of courtrooms.

What Documents are Necessary for Securities Arbitration?

Have you ever invested in the stock market and felt justice was not served? Securities arbitration may be the answer. Investors must understand the documentation necessary for securities arbitration to litigate a case effectively.

The first document is a legal claim form that outlines the investor’s allegations against their broker or firm. This form must include the following:

  • The nature of the dispute
  • Details on how much money is at stake
  • A timeline of relevant events
  • Any evidence supporting the allegation

The second requirement is an agreement signed by both parties consenting to resolve disputes through arbitration instead of litigation. This legally binding agreement will determine which laws apply when ruling on any potential claims.

It also defines what type of relief can be obtained if found guilty. Additionally, it should state who will bear all costs associated with pursuing a claim, including attorney fees and filing fees.

Next, documents proving ownership over investments are essential. These documents could come in many forms, such as brokerage statements, account open letters, trade confirmations or monthly performance reports – whichever shows proof of purchase and sale date versus expected date of execution (if applicable).

Furthermore, correspondence between parties involved should be presented to provide contextual insight into events leading up to the complaint being filed; this includes emails sent back and forth between brokers and customers before initiating proceedings.

In addition to these prerequisites, investors must ensure they have sufficient funds before starting a claim since there might not always be enough compensation from winning an arbitration case to cover expenses incurred throughout the process.

Ultimately, ensuring one has every necessary piece of the paperwork ready will help ensure arbitrators understand why action must be taken so a fair resolution can be reached quickly and efficiently!

What is the Process of Securities Arbitration?

Securities arbitration is a process that helps resolve disputes between investors and broker-dealers. It’s an alternative to traditional legal proceedings, allowing parties to resolve their dispute more timely than the court system can provide.

Securities arbitration is managed by securities industry self-regulatory organizations (SROs), such as FINRA or the American Arbitration Association (AAA). The process involves an arbitrator who hears both sides of the case and decides based on the evidence presented during the hearing.

  • The first step of this process is for the investor to file a Statement of Claim with their SRO.

This document outlines how much money they believe they are owed from their dispute with the broker-dealer. The SRO then contacts the broker-dealer and provides them with details about the claim. Following this, both parties will work together to select an arbitrator with experience in resolving similar cases.

  • Once an arbitrator is selected, each side presents its arguments at a hearing before that person.

During this time, witnesses may be called upon to testify, and documents may be shared to support one party’s claims over another’s.

  • After listening carefully to both sides’ perspectives, the arbitrator renders a final decision which typically cannot be appealed unless fraud was involved in some way.

In most cases, an award must be paid within 30 days of being issued unless otherwise stated by law or agreed upon by all parties involved.

Depending on any regulations or laws relevant to the case, either party may also request attorney fees if warranted; however, these requests do not always result in awards being granted.

All decisions made through securities arbitration are legally binding on both sides regardless of whether either party agrees with it or not – meaning that neither side can take further action against one another without permission from the courts following payment of any awarded funds due under the terms of settlement agreement finalized by all parties concerned.

Attorney’s Fees & Costs in Securities Arbitrations

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Attorney’s fees and costs are an important consideration in these proceedings, as they can significantly affect a party’s financial position.

Several factors go into determining how much the attorney’s fees and costs will be for securities arbitration cases.

  • The first factor to consider is whether or not an attorney has been retained to represent one of the parties involved in the dispute.

If so, the amount of money paid for legal services will depend on what type of representation has been agreed upon by both parties before filing a claim with FINRA or another regulatory body. The complexity may also influence the cost of securing legal counsel for a securities-related matter.

  • Another factor influencing attorney’s fees in securities arbitration is the size of any award received as part of a settlement agreement.

Generally speaking, if no award is made at all, then attorney’s fees will be significantly less than those awarded when either party has won substantial damages.

Additionally, certain jurisdictions may impose limits on the maximum amounts allowed to be charged by lawyers representing clients in such matters – this should always be considered before initiating litigation proceedings against another party.

  • Finally, it is important to remember that while an individual may choose to hire an attorney for their case, they do not necessarily have to do so.

Many individuals opt to represent themselves during securities arbitrations without incurring additional costs related to engaging legal counsel.

Regardless of whether or not someone decides to enlist professional help, however, it is essential that they thoroughly research all applicable laws and regulations pertaining to their particular situation beforehand so as best equip themself for navigating through arbitration proceedings successfully.

Hourly Fees:

Having discussed the general rules for attorney’s fees and costs in securities arbitrations, we now discuss hourly fees more specifically. Hourly fees are just what they sound like—the amount an attorney charges per hour worked on a case.

Generally speaking, attorneys charge different rates depending on several factors: their experience level, the case’s complexity, and where it is taking place. The most experienced lawyers typically charge higher rates than those with less experience or focus on cases requiring fewer resources.

This means that if you have a particularly complex legal matter that requires significant research and time commitment from your lawyer, expect to pay higher hourly fees. That said, many attorneys offer discounts to clients who commit to working together for an extended time or who bring multiple matters to them simultaneously.

In addition to experience levels and complexity, geographic location can also play a role in determining how much an attorney charges per hour. Attorneys in major metropolitan areas tend to charge higher fees due to the cost of living being significantly higher there than in other parts of the country.

Similarly, some states have laws setting maximum limits for certain types of legal fees and special considerations for specific economic situations such as poverty or disability status. Regardless of these variables, when choosing an attorney, it is important to remember that quality should always come before any price consideration.

An inexperienced lawyer may be cheaper upfront but could cost you more money over the long run if they make mistakes during your arbitration proceedings. Researching potential lawyers’ backgrounds and experience will help ensure that you select someone capable of providing effective representation within your budget constraints.

Contingency Fees

Securities arbitration is complicated, and it’s important to understand the basics before diving in. One of these basics is contingency fees – what they are, how they work, and why they’re so important. Let’s take a closer look at this key component of securities arbitration.

Contingency fees refer to the payment arrangement between an attorney and their client wherein the lawyer agrees to accept only a portion of any judgment or settlement as payment for their services. The percentage varies from case to case; however, lawyers typically request around 25-40% of a settlement amount or court award if the claim is successful.

Even if no money changes hands at all, attorneys may still bill for time spent preparing documents or conducting research related to your case. It’s worth noting that certain restrictions are placed on contingency fee arrangements when dealing with securities cases specifically.

For example, contingent payments must not be greater than 20% higher than other types of legal representation agreements unless the lawyer has incurred additional expenses during the process.

Furthermore, any disputes regarding such agreements can be brought before FINRA (Financial Industry Regulatory Authority), which has established regulations governing contingency fee settlements in securities arbitrations.

The use of contingency fees can help protect both parties involved in a securities dispute from financial risk due to unforeseen costs associated with litigation proceedings while also providing clients with access to experienced legal counsel who specializes in handling such matters even if they don’t possess sufficient funds upfront to pay hourly rates for legal advice and assistance.

Ultimately, understanding this aspect of securities arbitration ensures that individuals know what to expect when deciding whether or not to pursue action against another party through such measures.

Hybrid Fees

Having discussed the concept of contingency fees, it is now time to move on to that of hybrid fees. Hybrid fees offer an alternative approach to arbitration charges.

In contrast to a pure contingency fee arrangement where a claimant pays nothing until and unless there is recovery, hybrid fees require more upfront payment from the client. This allows arbitrators to be assured that they will receive compensation regardless of whether or not any money is recovered in the case.

Hybrid fees are often structured with a portion being paid as a flat retainer at the outset of the claim and another part contingent upon achieving success. The size of each component depends on various factors, such as the complexity of the case and its estimated duration but typically ranges between 25% – 50%.

For instance, if one were filing a $100K dispute, their attorney may ask for an initial non-refundable retainer of, say, $10k followed by 40% of any recovery above this amount.

The advantage of this structure is that clients gain access to experienced attorneys who would normally be too expensive due to higher hourly rates while still having confidence that their lawyer has skin in the game since they only pay once something is recovered.

On the other hand, lawyers can remain competitively priced compared to those offering purely contingent arrangements yet still generate sufficient income even if unsuccessful cases occur regularly.

Overall, hybrid fee structures provide both claimants and their representatives with greater flexibility when creating cost plans without sacrificing either party’s financial interests during complex disputes which could drag out over multiple hearings and months or years before resolution.

Fee Retainers

Fee retainers are a key component of securities arbitration. As such, they must be carefully considered in any dispute resolution involving investments or financial products.

A fee retainer is the amount the client pays to their representative before any work begins on their behalf. The representative will then use these funds to cover costs associated with the case, including filing fees, research materials, and expert testimony costs.

The level of fees charged by representatives varies depending on the experience and complexity of the case. Generally speaking, higher-risk cases command higher retainer fees from clients as representatives need extra resources to prepare for litigation or mediation proceedings adequately.

Fee retainers also allow representatives to make sure there is enough money for legal expenses throughout the process so that nothing gets overlooked or neglected due to a lack of monetary resources.

Arbitration rules require all parties involved in the dispute to disclose information regarding the nature of their respective fee retainers within certain timelines, typically before the scheduled hearing dates. This ensures fairness between both sides and allows each party time to review documents provided by one another while ensuring proper disclosure is made.

Additionally, if either side feels that more information needs to be disclosed after initial filings have been submitted, additional disclosures may be required under state law requirements or specific arbitration rules governing a given proceeding.

The outcome of any securities arbitration ultimately rests upon how well a lawyer can effectively communicate with their client about their respective risks and rewards to come up with a solution that satisfies everyone involved in the dispute.

Consequently, lawyers and investors alike need to understand all aspects related to fee retainers when engaging in this type of alternative dispute resolution process so that expectations are clear from the get-go and potential issues can be addressed accordingly along the way toward achieving an agreeable settlement or ruling after proceedings.

Recovery of Attorney’s Fees and Costs

Securities arbitration can be a complex process for investors to navigate, particularly when it comes to recovering attorney’s fees and costs. Fortunately, certain rules in place aim to protect the investor from excessive financial burden throughout the proceedings.

The primary rule is that the claimant must prove their entitlement to an award of attorney’s fees after proving all other claims for relief, as specified by Rule 12204(b) of the Code of Arbitration Procedure of FINRA.

It should also be noted that if a party fails to appear at any hearing or proceeding without a good cause being shown, they may be deemed responsible for paying both parties’ attorneys’ fees and expenses associated with such failure.

It is important to note that most securities arbitrations involve non-legal disputes between two or more parties over contract terms and conditions or statutory rights; this means legal fees will not typically be awarded unless allowed under state law.

Furthermore, even if a party successfully convinced the panel that they are entitled to compensation for their legal fees, those amounts would still need to meet strict criteria set forth by FINRA before they could qualify for reimbursement. These include detailed documentation of hours worked, hourly rates, and the total amount claimed.

In addition, claimants need to understand that awards given through securities arbitration are binding on both sides once made; however, no interest shall accrue on any monetary award, and only minimal punitive damages will ever be considered.

On occasion, additional sanctions may be imposed against one or both parties depending upon the nature of conduct alleged during litigation. In these instances, separate hearings will often occur where each side has ample opportunity to present evidence regarding why specific remedies may or may not be appropriate based on existing facts surrounding the case.

When it comes down to it, determining who pays what can quickly become a complicated territory in securities arbitration cases – so having a clear understanding of applicable laws before entering into settlement negotiations is always highly recommended. This allows everyone involved an equal chance at achieving satisfactory results while avoiding costly mistakes along the way.

Pro Se Representation

Pro se representation in securities arbitration is the process of representing oneself without a lawyer. It can be beneficial when faced with disputes that may not warrant legal counsel or require an individual to take full responsibility for their case.

Pro se representation also allows individuals to save money by avoiding costly attorney fees, as well as having direct control over their cases and decisions. While pro se representation has advantages, it is important to consider any potential challenges before making this decision.

One major challenge associated with pro se representation is ensuring all necessary paperwork is submitted properly and timely throughout the process. In addition, individuals must know and understand applicable laws, regulations and procedures related to arbitrating a dispute to make informed decisions about their case.

Mistakes could prove costly during proceedings without the assistance of qualified professionals such as lawyers or legal advisors. Access to resources such as guides, tutorials, and seminars will help those who choose to represent themselves navigate through the arbitration system more easily and effectively.

Moreover, individuals should always keep records of any correspondence sent or received from parties involved in their case, which would provide evidence if needed down the line.

Furthermore, they should consult with third parties willing to offer constructive advice at no charge, including family members or friends familiar with finance and law matters whenever possible.

While taking on pro se representation may seem daunting initially, due diligence is key before entering into arbitration proceedings alone. Doing so will ensure that individuals better understand what’s expected of them throughout each stage of the process resulting in a successful resolution — whether favorable or unfavorable — being reached in the end.

What is the Role of the Arbitrator?

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To begin to understand this, let’s take a closer look at the arbitrator’s function. An arbitrator is responsible for evaluating each side of a dispute and deciding what outcome should be reached based on the facts presented by both parties. Several key components define the role of an arbitrator:

  • Neutrality – The role of an arbitrator requires unbiased judgment and consideration; they need to remain impartial throughout the process.
  • Expertise – Arbitrators must have extensive knowledge of securities law and financial regulations to make informed decisions.
  • Impartiality – It is vital that all parties involved feel their positions were considered fairly before any decision was made. The arbitrator must ensure fair treatment and respect for all sides during proceedings.
  • Accountability – As part of their responsibility, arbitrators must be held accountable when mistakes or errors occur within the resolution process.

The importance of having an independent third party like an arbitrator cannot be understated when settling disputes related to investments or other financial matters. Their expertise helps protect investor interests while ensuring fairness in proceedings with brokers or other financial institutions.

These professionals help maintain order and stability in markets worldwide by providing a neutral platform. Through thorough evaluation of evidence and careful consideration, they ultimately determine how best to resolve differences between individuals or organizations without resorting to costly court battles.

Frequently Asked Questions

Is there a limit to the amount of damages that can be awarded in a securities arbitration?

In securities arbitration, there is typically a limit to the amount of damages that can be awarded. The type and size of a claim determines this limit. If an investor is unhappy with the outcome of their case, they may appeal it within 30 days for further consideration, but this does not guarantee that additional compensation will be granted.

Is there a statute of limitations for filing a securities arbitration claim?

Yes, a statute of limitations exists for filing a securities arbitration claim. The deadline for the filing period typically depends on the state in which the claim was filed and can range from one to six years from when the investor discovers or should have discovered their damages.

In some cases, it may be extended if fraud or misrepresentation occurs. Investors should always consult with an attorney to ensure that claims are submitted within the applicable time frame.

Are there any specific rules that must be followed for a securities arbitration?

Yes, specific rules must be followed for a securities arbitration. These include filing the claim with FINRA’s Dispute Resolution Office and providing notice to both parties involved.

Additionally, all documents must be exchanged between parties before the hearing date. The claimant must also provide an initial fee of $200 upon filing the claim and pay any associated costs or fees during the proceedings.

What types of awards are usually granted in securities arbitration?

Securities arbitration awards are typically monetary damages but can also include other types of relief, such as injunctions or contractual modifications. Monetary damage awards may be compensatory, punitive, or both.

Compensatory damages aim to put the claimant back in the same financial position they were in before their dispute arose, while punitive damages are meant to punish wrongdoers and deter others from similar actions. Injunctions are court orders that require one party to take (or not take) certain actions. Contractual modifications involve changing some terms of an agreement between two parties.


Securities arbitration is a complex process, but it can be a valuable option for investors who have suffered losses due to fraud or other misconduct. Knowing the costs and limitations associated with securities arbitration and any specific rules that must be followed will help ensure that you can make an informed decision about whether this type of dispute resolution is right for you.

In addition, being aware of the types of awards typically granted in these cases can help you determine your potential outcomes. With this knowledge, you’ll be better equipped to protect your financial interests and seek justice if necessary.

If you need representation or have any questions about the basics of securities arbitration, Wolper Law Firm, P.A. is here to help. Our experienced attorneys can provide the legal advice and guidance you need to understand your options and make informed decisions about how best to protect your financial interests. Contact us today for a free consultation.

Attorney Matthew Wolper

Attorney Matthew WolperMatt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks. [Attorney Bio]