The Financial Industry Regulatory Authority (FINRA) was established in July 2007 when the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE) were consolidated. FINRA is responsible for overseeing regulation and compliance of more than 4,800 brokerage firms and nearly 650,000 stockbrokers.
FINRA’s Investor Complaint Program
FINRA’s Investor Complaint Program investigates complaints against brokerage firms and their employees. Where appropriate, FINRA will take disciplinary action against brokers. Sanctions can include fines, suspensions and disbarment from the securities industry. FINRA’s Investor Complaint Program is a disciplinary program that is separate from FINRA’s Dispute Resolution Division. Whenever a disciplinary investigation is started, FINRA often sends investors a standard letter with the following disclaimer:
“Please understand that we are not representing you individually in this matter. There is no assurance that any action will result in the return of funds or securities to you. If you feel you are entitled to monetary relief, you may wish to initiate an individual action, such as mediation or arbitration. FINRA provides a forum for resolving individual disputes through its Dispute Resolution Division.”
FINRA’s Dispute Resolution Division is responsible for overseeing the arbitration and mediation of disputes between investors and stockbrokers. When a customer opens a brokerage account with a brokerage firm that is a member of FINRA, the customer is obligated to submit any dispute to arbitration in accordance with the rules and procedures of FINRA Dispute Resolution.
Arbitration of Securities Disputes
Claims seeking damages of $25,000 or less are usually decided under the “simplified arbitration” procedures in which a single arbitrator decides the case based on the written record without the need for a hearing. Larger claims are decided by a panel of either one or three arbitrators, depending upon the dollar amount involved. A total of 7,173 securities arbitration cases went to hearing during the 5-year period from 2003 to 2008. Customers prevailed in 3,295 of those cases–or just 45% of the time. Securities arbitration is often misperceived as an informal proceeding; however, securities arbitration is a highly specialized area of the law and there are many qualified attorneys who focus exclusively on representing either customers or brokerage firms. When going to arbitration, customers need to be well prepared.
Mediation of Securities Disputes
Mediation is an alternative method of resolving a securities dispute that can be initiated at any stage of the arbitration process. Because participation in mediation is voluntary, both parties must agree to submit a case to mediation. Mediation begins with the selection of a trained mediator whose function is to help the parties negotiate a settlement. Mediation is non-binding, so the dispute will go to arbitration if the parties are unable to reach a settlement.