If you are involved in the broker-dealer industry, you will likely come across a dispute that needs resolution. What are your options as a stockbroker, investment firm, or investor? FINRA is a government authorized, not-for-profit organization that oversees broker-dealers in the U.S. and provides mediation and arbitration services. FINRA helps resolve disputes between brokerage firms, individual brokers, and investors.
Mediation and arbitration are two quick and inexpensive ways to resolve issues between these parties. When a dispute involving the business activities of a broker or a brokerage firm comes about, an investor can file a claim for arbitration or request mediation via FINRA. The incident must have happened within the last six years. If you are involved in a dispute, you may be wondering whether you should engage in mediation or arbitration. Below, we will explain some of the differences between the two processes.
Arbitration is typically cheaper, faster, and less complicated than litigation through a trial. Arbitration is more formal than mediation, and it can resemble going to court in some ways. During the arbitration process, the parties involved select a neutral third-party arbitrator. The arbitrator will work with the parties to effectively resolve the dispute at hand. At the end of the arbitration process, the arbitrator will issue a decision, also called an award. This decision is final and binding on all parties involved.
The parties select arbitrators used by FINRA. They are independent and have experience with financial disputes. While arbitrators are not themselves judges, and the arbitration process happens outside of the court system, the arbitrator’s decision is final. FINRA helps the parties facilitate the arbitration process by making a forum available according to the rules set forth by the SEC. However, the FINRA does not itself play a role in deciding the outcome of the case. The arbitration process is different from mediation and the court system because it uses rules set up by the SEC. While the arbitration process does cost money, it is often significantly cheaper than the cost of going to trial.
One of the main advantages of arbitration over going to trial involves the public nature of trials. In most cases, the arbitration process is confidential. Once the parties submit documents to the arbitrator, these documents are not made publicly available. Court filings often are available to the public. When the arbitrator reaches the conclusion of the case and makes a decision, the award is posted on the arbitration awards online database, which is publicly available.
Arbitration Decisions are Final
Sometimes, people assume that if they are not happy with the decision made by the arbitrator, they can appeal the decision in a court of law. This is not the case, however. By submitting to the arbitration process, you waive your right to have the matter heard by a judge in the court of law. Instead, the arbitrator or a panel of three arbitrators will listen to the arguments made by all of the parties involved. The arbitrator will study any witness testimony, physical evidence, or documentary evidence before making a final and binding decision. The arbitration process can take up to 16 months before the final decision is made, especially when a hearing is involved.
When the dispute involves a monetary value of over $100,000, the parties must submit to an in-person hearing before a panel of three arbitrators. When smaller claims are involved, the parties can go through the Simplified Arbitration Process, in which the arbitrator determines the case after reviewing all the materials presented by the parties. The simplified arbitration process is faster because it does not require the parties to attend an in-person arbitration hearing.
The Mediation Process
The mediation process is less formal and more flexible than arbitration. The parties involved can initiate the mediation process anytime before they begin arbitration. They can even request mediation during the arbitration process before the arbitrator makes his or her final decision. Sometimes parties prefer the mediation process because it is not as formal, and it is a voluntary process that either party can choose to stop at any time. Despite the mediation process being voluntary, it often has success—over 80% of mediations reach a resolution in which the parties agree to a settlement.
Because the mediation process is not as formal as arbitration and does not require a hearing, it often moves more quickly than the arbitration process. The arbitrator's final decision is legally binding. With mediation, the mediator does not need to make a final decision or impose a solution. The parties can choose to end mediation and not sign a legally binding settlement agreement. However, if they do reach an agreement, they can sign a legally binding settlement agreement.
The mediator involved in FINRA disputes has expertise in the subject matter involved. This helps both parties feel as though the mediator understands them. In court settings, both parties have their attorney who represents their interest. The core process is adversarial by nature. On the other hand, the mediation process is more open, and solutions face. In other words, the mediator does not work for one party or represent only one party’s interests. Instead of the mediator’s goal is to work with both parties to find a solution that works for everybody.
Attorney Donna Solomon is an Experienced FINRA Arbitrator
Attorney Donna Greenspan Solomon is a FINRA-approved arbitrator. She is also an AAA Arbitrator and a Florida Supreme Court Qualified Arbitrator. She has the technical legal skill to effectively arbitrate investment disputes, as she is certified as a Business Litigator and an Appellate Specialist with the Florida court. Contact Solomon Appeals, Mediation & Arbitration today to schedule your initial consultation.