Arbitration Myths
One of the biggest myths about securities arbitration or stockbroker claims by customers in FINRA securities arbitration is that the process is investor friendly and people can do-it-yourself. Nothing can be further from the truth.
The securities industry who defends these claims as a business has legions of in house counsel and outside counsel who are highly experienced and whose whole job is making sure for whatever technical reason, you lose your arbitration claim.
The system is legalistic. A lawsuit or arbitration is commenced with the customer filing a complaint ot Statement of Claim, which can be in the form of a narrative, but which is very much a legal document containing the relevant facts supporting the claim and the applicable law or legal theories of relief or why you should be awarded money.
Respondents, the offending broker and brokerage firm, if you chose to name the broker individually as a party, will file an Answer advancing a host of legal and factual reasons why the customer has no claim or was otherwise unjustified in relying upon the advice of their stockbroker or investment professional.
The parties will engage in "discovery," which in substantial part means that the offending stockbroker and stockbrokerage firm witll argue that every documents or piece of evidence that exists in support of the customer's claim is either to "burdensome" to be produced, is "irrrelevant" or not important, at least from their perspective, or its otherwise "privileged," which can mean a whole bunch of things, including that when they prepared the document or did something bad, they anticipated getting sued.
On the other hand, the brokerage firm will seek every document from you, including your tax returns, resume, loan applications, and sometimes even seek your bank account statements to show if you ever took a course on accounting, played the lottery, or are smarter than a fiftth grader, you should know that the stockmarket includes risk and that investment fiduciaries are mere salespersons and you were unjustified from relying upon their investment advice.
In any event, securities arbitration is litigation. It can be very complicated. The securities industry hires qualified counsel to pursue these cases, and wronged investors need to hire qualiifed counsel to pursue these claims.
Another common myth is that Securities Arbitration before FINRA, formerly the NASD or NYSE, is bias towards the securities industry because it is sponsored by a Self Regulatory Organization, consisting of the securities industry, and at least one person from the securities industry will be on the arbitration panel that will decide your securities fraud claim.
While this used to be somewhat true, now wronged investors with claims against stockbrokers and investment professionals for fraud, negligence, breach of fiduciary duty or other claims, have the right to request that their FINRA Arbitration claim be heard by an All Public Panel without any non-public or industry arbitrator.
The problem is however the parties choose or rank arbitrators and are allowed to strike arbitrators they do not like (up to eight on an all public list for any reason), public FINRA securities arbitrators who that decide too often for the customer, or award attorney's fees or punitive damages, will quickly learn that they will be struck by the brokerage firms during the arbitrator selection process or not be chosen to sit on arbitration panels.
Panels and their decisions are, for the most part, fair, and while the outcome of any particular case is based on the facts in that case, statistics show that of those cases going to a hearing, historically customers prevail in approximately 60% of these actions.
While the facts in each case are different, and each case is heard by different panels, statistics become meaningless. However, statistics, including the number of matters filed each year, the number of cases resolved through Mediation, or in which at a final hearing, customers have prevailed, and the amounts of their respective recoveries for claims involving fraud, churning, suitability, and other causes of action are contained at the FINRA Arbitration's website.