Trying the most complex issues
for over 30 years.

Investment losses due to broker misconduct? Consider arbitration

If you have a brokerage account and a dispute arises, you may be required to handle it in arbitration. Or, you may decide that arbitration is the most favorable venue for your dispute. In fact, surveys have found that investors get good results in arbitration when compared to litigation. Investors who hire a lawyer for a securities arbitration are 1.6 times as likely to obtain at least 60% of their claim.

How does arbitration work?

Arbitration is a lot like courtroom litigation, but with several important differences. The process is handled by an arbitrator, typically one both parties agree upon. This is a neutral third party, hired instead of appointed.

Also, the rules of evidence are relaxed in arbitration, compared to court. You may see evidence admitted with the understanding that it has to be weighed carefully because it would not be admitted in court. The arbitration process itself is less formal than a court, although it remains somewhat formal.

Arbitration can take less time than courtroom litigation for several reasons, including the greater availability of arbitrators versus judges and the less formal requirements. Finally, in most cases, an arbitration award cannot be appealed, so a decision reached in arbitration is final.

The arbitration process itself is much like court. In most cases, each side has an attorney, and that attorney presents the facts and law of the case to the arbitrator. Once each side has presented its case, the arbitrator (or panel or arbitrators) deliberates and then reaches a decision.

Generally, arbitration is a choice. Either you agreed to it when you signed your contract, or you choose to undertake arbitration because of its advantages.

Do you have to use a specific arbitrator?

No, although your contract may specify the arbitration rules or service. For example, many brokerage contracts specify that you will arbitrate any disputes through the National Association of Securities Dealers (NASD) arbitration rules. Typically, brokers and securities dealers are members of the NASD.

Another common arbitration service is the Financial Industry Regulatory Authority (FINRA).

What kinds of securities claims can be handled in arbitration?

Any dispute that you could bring to court may be handled in arbitration, if both parties agree. Some typical complaints investors arbitrate include:

  • Unsuitability of investments
  • Failure to diversify
  • Material misrepresentations or omissions
  • Negligence
  • Misappropriation
  • Unauthorized trading
  • Negligence
  • Churning investments
  • Breach of fiduciary duty

There are many ways securities arbitration may be advantageous over making a claim in the courts. Hire an attorney who has concrete experience in securities arbitration.