by Brian Mahany
Usually when potential clients come to us wanting to sue their stockbroker they become quite surprised and suspicious that all claims must be arbitrated. Questions almost always arise. This blog post hopes to answer some of those questions.
FINRA is short for the Financial Industry Regulatory Authority. It is the largest independent regulatory body for stockbrokers and brokerage firms in the nation. It is also not a government agency.
Although acting under a government mandate, the entity itself is actually a nonprofit corporation. It’s mission, however, is quite public – it is the primary beat cop for brokers. [Investment advisers are regulated directly by the SEC.]
Almost every customer agreement requires that disputes with brokers be sent to a FINRA arbitration panel. That means you can’t sue your stockbroker. While the loss of the right to have a jury of your peers hear your case is significant, FINRA arbitrations are often much quicker and less costly than jury trials.
FINRA just released new arbitration statistics. Those show that the average turnaround time for a case last year was 12.2 months. Compare that with most courts and you will find FINRA is faster. Thus far this year, FINRA cases are taking approximately 14 months but its still too early to tell how those numbers will look by the end of the year.
Does every case go to a trial or “arbitration hearing”? No. Just like court cases, most arbitrations settle. Just 17% require a hearing.
Probably the most important question is how fair is the process? Although you probably waived the right to have a court trial with a jury when you opened your account, you are generally entitled to a hearing before a 3 person arbitration panel. Contrary to popular opinion, those arbitrators are not all “good ol’ boys” from other brokerage firms sitting in judgment of one another. FINRA trains and maintains a pool of people willing to hear these disputes. Panels have 2 public members and 1 industry member.
The real proof is in the decisions rendered. Last year 48% of the cases decided resulted in an award for the claimant or customer. Although that sounds a bit low, remember that the obvious fault cases usually settle. When the statistics are combined, FINRA says that in 76% of the cases resolved last year (settled or decided), the claimant recovered money.
All is not rosy, however. There continues to be a reluctance for arbitration panels to award punitive damages. Generally if the panel believes the broker was wrong, the panel strives to simply make the victim whole.
Whether the arbitration of stockbroker fraud cases is good or bad, there is little choice in most instances. FINRA claims that customers get a fair shot and quick resolution and the statistics, at least, bear that out.
If you are the victim of an investment fraud or if a stockbroker recommends unsuitable investment or mismanages your money, call us. Our stock fraud lawyers can help you anywhere in the nation. For a no obligation consultation, contact attorney brian Mahany at (414) 704-6731 (direct) or by email at
Mahany & Ertl, LLC – America’s Fraud Lawyers. Offices in Milwaukee, Detroit, Portland & San Francisco. Services nationwide.