What is the Difference Between FINRA Arbitration and Mediation?
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It often takes large losses for an investor to consider suing his or her stockbroker or financial advisor. However, experienced FINRA arbitration attorneys know that investors may have a claim even if their portfolio realized modest gains. In evaluating a potential...read more
The Financial Industry Regulatory Authority, or FINRA, is a non-governmental organization authorized by Congress to regulate the activities of its members within the finance and securities industries. To date, these members include approximately 630,000 individual brokers and 3,700 securities firms. When an investor believes that he or she has been cheated or deceived by a broker, brokerage firm, or investment advisor, the investor can file a complaint or claim with FINRA, opening the door to a dispute resolution process that may allow for financial recovery. There are two basic methods of FINRA dispute resolution: arbitration, and mediation. Read on to hear FINRA arbitration lawyer Dietrich Epperson discuss the difference between these procedures, and explain how both differ from securities litigation.
What Types of Securities Fraud Claims Does FINRA Handle?
FINRA oversees a variety of claims and complaints investors file against their stockbrokers, brokerage firms, and financial advisors. However, certain claims are beyond the scope of what FINRA normally handles. For example, complaints about public companies and transfer agents are handled by the Securities and Exchange Commission (SEC).
Before considering FINRA arbitration or mediation as a remedy to your dispute, make sure that your financial issue falls within FINRA’s jurisdiction. FINRA handles claims involving the following types of securities fraud:
- Unauthorized trading, which occurs when a stockbroker purchases and/or sells stocks without obtaining advance authorization.
- Unsuitable investments, which are investments an investor makes based on inappropriate financial recommendations.
- Omission, which occurs when a broker conceals key information about an investment.
- Identity theft, which occurs when a broker uses an investor’s identifying or financial information for personal monetary gain.
- Ponzi schemes, pyramid schemes, and related financial scams.
Don’t worry if you aren’t certain whether FINRA is the right organization to investigate your issue. Our FINRA lawyers can help you understand whether you have a claim when you contact our law offices for your free initial consultation.
FINRA Arbitration vs. Mediation vs. Litigation
If an investor believes that he or she has been defrauded by his or her financial advisor or stockbroker, the investor has the option of filing a complaint or filing a claim with FINRA. If the investor’s goal is simply to shed light on a potential ethics violation or instance of misconduct, filing a complaint may be an adequate remedy. However, if the investor’s goal is to recover financial compensation, it will likely be necessary to initiate the arbitration or mediation process. The question is, which is most appropriate?
The answer depends on the unique circumstances and details, making case-by-case evaluation essential when determining the strongest legal strategy for an investor to pursue. While it is impossible to state whether arbitration or mediation is “better” for your matter without knowing the specifics, it is possible to provide a comparison of the two procedures.
FINRA mediation, which FINRA describes as “a flexible alternative to arbitration,” is a relatively relaxed, cooperation-oriented approach to resolving disputes between investors and stockbrokers. In FINRA mediation, which can only be initiated if both investor and broker agree to participate, both parties meet before FINRA mediators. Investors and brokers can select a mediator whose area of expertise pertains to the issue at hand – for example, a mediator who specializes in disputes arising from breach of contract, or trade churning.
According to FINRA, “More than 80% of mediations result in a settlement, and the process is in most cases significantly faster than arbitration.” Moreover, mediation outcomes are not legally binding until both parties have signed a settlement agreement.
While mediation provides both speed and flexibility, it is not always an appropriate approach to dispute resolution – particularly in cases where the investor has sustained major losses due to fraudulent or negligent acts. FINRA arbitration is a tougher, more procedurally rigid approach.
FINRA arbitration is similar to litigation, but is more streamlined for greater cost-efficiency. In fact, when an investor is represented by Epperson & Greenidge, LLP, he or she will not pay any legal fees unless we recover compensation.
In arbitration, a neutral third party called an “arbitrator” – or in some cases, a panel of several arbitrators – is appointed to oversee the claim. Both parties go through a formal information exchange process called “discovery” once dates and times have been settled through telephonic prehearing conferences. The information obtained during discovery is presented to the arbitrator or panel during a hearing, culminating in a written decision known as an “award.” If the investor can prove that his or her stockbroker caused financial harm by committing fraud or acting with negligence, the investor may be awarded financial compensation, which is called “damages.” For a detailed step-by-step overview of the FINRA arbitration process, see our article here.
The third and most aggressive option is litigation: in other words, filing a lawsuit and going to court. While litigation is a slower-moving and more elaborate process than arbitration or mediation, there are some situations where this strategy provides the highest likelihood of success for the investor.
FINRA Arbitration Attorneys Representing Investors
If you were cheated by your stockbroker or financial advisor, you may be entitled to financial compensation. However, you must present a compelling, evidence-backed case before FINRA before you can receive compensation. Let the knowledgeable and experienced securities fraud attorneys of Epperson & Greenidge, LLP provide the aggressive representation you deserve. You won’t pay any fees unless we recover for you. For a free consultation with our FINRA attorneys, contact Epperson & Greenidge, LLP online, or call us today at (877) 445-9261.