Disputes frequently arise between investors and their securities brokers. It is best to be proactive if you believe your broker has mismanaged your investments. As an investor, you may report any issues or disputes to your broker’s manager or the brokerage firm’s compliance department. You should keep notes of all telephone calls with your broker or brokerage firm, including names, dates, and times of the calls. You should also retain copies of all written correspondence.
If communication with your broker’s manager or brokerage firm’s compliance department does not resolve the dispute to your satisfaction, and especially if you believe you are entitled to monetary damages, you should consider initiating a FINRA arbitration. Although investors are not required to be represented by an attorney in an arbitration, brokerage firms are typically represented by counsel. For that reason, consulting with and retaining an attorney to represent you in a FINRA arbitration is advised.
An investor may commence an arbitration against their broker, their brokerage firm, or both. Nearly all contracts between investors and broker-dealers contain an arbitration clause that requires an investor to arbitrate disputes. If your contract contains this type of arbitration provision, also called the “arbitration agreement,” you may only seek to resolve your dispute in arbitration; you may not bring your claim in court.
An investor begins the arbitration process by filing a Statement of Claim with FINRA. Once this is filed, the investor is called the “claimant.” The parties against whom the claimant files the Statement of Claim – i.e., the broker and/or the brokerage firm – are called the “respondents.”
The Statement of Claim is a written document that outlines the details of the dispute, such as the facts, the relevant dates, the names of the people and companies involved, what the claimant is seeking in the arbitration (in other words the “relief” or “damages” sought, such as money, interest, or specific performance of contract terms), and the respondents from whom the claimant seeks relief or damages. Any documents referred to in the Statement of Claim, in particular the contract containing the arbitration agreement, should be attached as Exhibits and filed with the Statement of Claim.
To initiate an arbitration, the investor must also pay the FINRA filing fees which are based on the amount of the total claim, including any punitive and treble damages, but not including interest and expenses. It is possible for an investor to obtain a waiver for the filing fees if they can demonstrate financial hardship.
In addition to the Statement of Claim and filing fees, a claimant must file a Submission Agreement, providing FINRA with all of the parties’ contact information. By signing the Submission Agreement, the investor agrees to submit their claim to FINRA and to abide by the arbitrators’ decision on that claim.
Finally, the investor – or his/her attorney – must send to FINRA an original copy of the Statement of Claim and the Submission Agreement along with one copy for each respondent and each arbitrator. After the Statement of Claim and Submission Agreement have been filed and the filing fees have been paid, FINRA sends the Statement of Claim to the respondents and the arbitration process begins.