Arbitration Case Flow

How to Start an Arbitration

 

Arbitration is a dispute resolution mechanism to help determine if aggrieved parties are entitled to recover damages. In arbitration, an impartial person or panel hears all sides of the issues as presented by the parties, studies the evidence, and then decides how the matter should be resolved. Arbitration is final and binding, subject to review by a court only on a very limited basis.

 

Caution. When deciding whether to arbitrate, bear in mind that if your broker or brokerage firm goes out of business or declares bankruptcy, you might not be able to recover your money-even if the arbitrator or a court rules in your favor. Over 80 percent of all unpaid awards involve a firm or individual that is no longer in business.

 

(That is one of the reasons why it is so important to investigate the disciplinary history of your broker or brokerage firm before you invest. For tips on how to do this, please read the SEC publication entitled Check Out Your Broker. Through FINRA's BrokerCheck Program, investors, and others, can find out background information about brokers and brokerage firms.)

 

An April 11, 2003 General Accounting Office Report (GAO-03-162R) on securities arbitration confirmed that the most frequent reason an arbitration award goes unpaid is that the firm or individual respondent is out of business.

 

Case Results
Most arbitration cases end with a settlement between the parties either through direct negotiation or through mediation. In recent years, parties agreed on a resolution in about 60 percent of all cases. Other cases are withdrawn or closed before the process begins. For example, more than 3,600 investor cases closed in 2001. Arbitrators decided the outcome in 1,365 of those cases and in 725 cases (53 percent of the decisions) arbitrators awarded damages to investors. See the FINRA Dispute Resolution Statistics.

 

During the first quarter of 2003, arbitrators in FINRA cases granted monetary damages against a brokerage firm or against a registered representative in 287 cases. In 78 of those cases, the award was not paid in full. In 67 cases, (over 85 percent of the unpaid awards) the party responsible for the damages was a broker-dealer firm or associated person that had left the securities industry. FINRA aggressively pursues disciplinary action against all active firms or individual brokers that do not promptly fulfill their obligations. (See FINRA's guidance entitled What If I Don't Get Paid?).

 

Deciding Whether to File a Claim
Firms and individual respondents who remain in the business generally pay arbitration awards entered against them, and information about unpaid awards should not discourage you from pursuing an arbitration case against most potential respondents. If you already have a dispute with your broker, and file an arbitration claim, FINRA will let you know once you have filed a claim if any of the respondents in your case is out of business. In those cases, you have the options of pursuing claims against those parties in court (NASD Customer Code Rule 12202), or - if the respondent does not participate in the case by responding to your claim - through expedited arbitration procedures (NASD Customer Code Rule 12801 and Industry Code Rule 13801). To help you decide whether to pursue a claim, we suggest that you consult with an attorney.

 

Please click on the boxes and fees below for description of each step in the arbitration process and a description of the associated fees.


Arbitration Case Flow Chart