How does securities arbitration work?
Most broker fraud and negligence cases are now heard through FINRA (Financial Industry Regulatory Authority) arbitration. Securities arbitration is mandated for most investor disputes because brokerage firms usually include an arbitration provision in their contracts with investor clients. Once you sign their contract, you are usually obligated to abide by that contract. That means giving up your right to a trial by a jury of your peers, and going to FINRA arbitration to resolve any disputes you may have with your broker or firm.
Filing a claim with a FINRA arbitration panel is very different from pursuing your case in state or federal court.
In FINRA arbitration, claims are not heard by a judge and are not decided by a jury.Instead, arbitrators are selected by the parties to decide the investor’s case. The number of arbitrators depends on the amount of the claim: claims with damages less than $50,000 usually are decided by a single arbitrator, while larger claims are resolved by a panel of three arbiters.
The discovery process in arbitration is limited: the parties do not get to depose witnesses and written discovery is limited by the rules and/or by the arbitrators. If an investor’s claim cannot be settled, the case is tried before the three arbitrator panel. In simplified arbitrations (those with damages under $50,000, the single arbitrator decides the case based on the documents and briefs submitted by the parties, without having an in-person evidentiary hearing.