FINRA Arbitration Process for Claims of $10M or More Launched

A new pilot program has been launched by the Financial Industry Regulatory Authority (FINRA), in hopes of better managing large arbitration claims involving $10 million or more.

The FINRA arbitration process was announced on July 2, designed to enable parties to customize the administrative process to better suit the special needs of a larger financial fraud claims and allow parties to bypass certain FINRA arbitration rules. Currently the program is available on a voluntary basis.

Some of the program’s customizable features include the ability for companies to have additional control over the method of arbitrator appointment and the qualifications of arbitrators, as well as the opportunity to hire non-FINRA arbitrators for the case.

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FINRA is the largest independent regulator for all securities firms doing business in the United States, providing arbitration services for claims against stock brokers and other financial firms involving breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.

In recent years, a number of large FINRA arbitration awards have resulted in media attention. However, Linda Fienberg, president of FINRA dispute resolution, indicates that the majority of awards issued this year by FINRA ranged from one to three million dollars.

Arbitration through FINRA is often required to resolve disputes among investors and firms. The process involves panels composed one or three arbitrators, who are selected by the parties. They read the pleadings filed by the parties, listen to the arguments, study the documentary and/or testimonial evidence, and render a decision.

As defined by FINRA, the panel’s decision is final and binding on all the parties. All parties must abide by the award, unless it is successfully challenged in court within the statutory time period.

Arbitration is generally confidential, and documents submitted in arbitration are not publicly-available, unlike court-related filings. On average, arbitration can take a little over a year to complete from the time the claim is filed until an award is rendered.  The turnaround time varies, and can be affected by many factors, including the number of parties and witnesses involved, the complexity of the issues, the volume of discovery and the schedules of the parties and arbitrators.


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