Warshaw Burstein LLP | SEC Issues Guidance for Resolving Securities Disputes with Broker-Dealers
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SEC Issues Guidance for Resolving Securities Disputes with Broker-Dealers

The SEC’s Office of Investor Education and Advocacy (“OIEA”) recently published an investor bulletin to educate investors on the legal remedies available for resolving disputes with broker-dealers under the Financial Industry Regulatory Authority (“FINRA”).

In the release, OIEA focused on arbitration as the primary method for resolving securities disputes. OIEA explained that securities disputes often are handled through arbitration because most securities account opening agreements include provisions dictated by the broker-dealer firms that mandate arbitration. Separately, even when a contractual provisions is absent, FINRA’s Code of Arbitration Procedure enables investors to compel broker-dealers to arbitrate upon request.

Arbitration is a formal alternative to litigation that provides a final, binding decision on a claim. Many commentators and practitioners believe that arbitration is less complex than litigation, is a less expensive alternative than a court trial, and produces a quicker outcome. Instead of a judge or jury, and subject to the size of the claim, the parties to the dispute select a neutral arbitrator or panel of arbitrators to preside over the hearing and issue an award to the prevailing party. Final decisions rendered through arbitration can be appealed only on limited grounds. Several exchanges (including NASDAQ, NYSE, CBOE, MEMX, IEX, MSRB, and MIAX) use FINRA’s arbitration forum to resolve securities disputes between investors and broker-dealer members of their exchanges.

In addition to providing general information on arbitration, OIEA further detailed:
  1. how to file an arbitration claim;
  2. time restrictions for initiating a claim (statute of limitations);
  3. the simplified arbitration process for claims under $50,000;
  4. filing fees for bringing a claim;
  5. arbitrator selection; and
  6. allocation and payment of awards.
OIEA also discussed mediation as a less formal, non-binding method of resolving securities disputes between investors and broker-dealers. All parties to the dispute must voluntarily consent, in writing, to mediation, and a neutral mediator then facilitates the process of achieving a mutually agreeable solution for both sides. If the parties are unable to reach an agreement via mediation, a claim still may be submitted for arbitration.

FINRA’s Arbitration and Mediation homepage has more information about arbitration and mediation.