Understanding Securities Claims Arbitration
The relationship between an investor and a brokerage firm in Maryland is defined in the transactional documents exchanged and completed to open and maintain an investment account. While those documents spell out the relationship and liability of each party, they also embody the good faith trust and responsibility each party expects in the other.
Sometimes, disputes arise between an investor and a stockbroker, or brokerage firm. When they do, transactional documents that created the investment relationship usually spell out means for dispute resolution—often requiring alternatives to securities litigation, including mediation and arbitration.
Regulatory agencies of the securities and commodities industry
There are two primary organizations that oversee securities firms, their personnel, and practices. Those organizations are the U.S. Securities and Exchange Commission (SEC), a federal regulatory and enforcement agency, and the Financial Industry Regulatory Authority (FINRA), a non-governmental, self-regulatory, non-profit organization with the mandate to protect investors by ensuring fair and honest dealings within the securities industry.
Formed in 2007, FINRA is the successor organization to the National Association of Securities Dealers (NASD), itself originally created in 1939. With approximately 3,200 employees operating in Washington D.C, New York, NY, and in 20 regional offices around the country, FINRA oversees 4,450 brokerage firms and approximately 629,755 registered securities personnel.
Given the impact of the securities and commodities industry on the national economy—and the lives of investors—FINRA carries out its mandate to safeguard the investing public from fraud and poor securities practices in the following ways:
- Drafts and enforces regulations governing the securities industry
- Provides investor education
- Conducts investigations and implements disciplinary measures
- Trains, licenses, and tracks brokers, and brokerage firms
- Conducts the largest national forum designed to hear, facilitate, and resolve securities-related disputes
Securities litigation and dispute resolution
Recent headlines speak loudly of the latest insider trading conviction, the next big-name white collar crime arrest. In Maryland and elsewhere, securities fraud continues to plague investors at every level. While some securities claims become the subject of civil securities litigation and criminal investigations, most securities claims are resolved through mediation or arbitration, often through the alternative dispute resolution (ADR) forum developed and driven by FINRA.
With 72 hearing locations around the United States, including Baltimore, FINRA provides non-judicial dispute resolution services to brokerage firm customers, brokerage firms, and their employees. ADR methods consume less time, money, and oftentimes lead to more satisfying results than securities litigation. Through FINRA, ADR options include:
- Mediation. The method of first choice, mediation is an informal, non-binding, voluntary process generally less expensive than arbitration. Through FINRA, services are offered by a trained, neutral mediator who works to facilitate, but not influence, resolution of the dispute between parties. In mediation, parties do not waive their right to arbitration, or litigation. FINRA reports four out of five, or 80 percent, of mediating parties resolve differences through their program.
- Arbitration. A formal, binding process, arbitration involves the presentation of evidence and testimony by each party to a single arbitrator or panel selected via input from participants. Documentation prepared and presented in arbitration is sometimes extensive. Because the decision of the arbitrator in a FINRA forum is binding, parties waive future rights to litigation on the matter.
Mediation and arbitration offer lower conflict, less expense, and less polarizing alternatives to lengthy securities litigation. At their best, ADR methods and FINRA work to restore not only technical regulatory protections for each investor, but also some of the good faith and trust that allows the securities industry to serve the 53 million Americans investing in a better future for themselves—and their children.
The choice of securities lawyers is yours—make it count
If you have a securities claim, any lawyer may take your case. Do not settle for any lawyer. If considering securities litigation or FINRA arbitration in Baltimore, or throughout Maryland, contact our attorneys at Discepolo LLP 24 hours a day to discuss how we can help.
Located in the Inner Harbor, our law firm is easily accessible and offers on-site, validated parking.
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