by Admin Istrator | March 1, 2022 9:31 am
FINRA—the Financial Industry Regulatory Authority—is a private, self-regulatory organization that regulates brokerage firms, financial advisors, and advisory firms. FINRA offers arbitration and mediation services for investors who seek assistance with some registered member that they feel has violated FINRA’s code of conduct.
FINRA maintains a public record of financial advisor and brokerage disciplinary actions and complaints which any investor can access when doing their due diligence on the advisor or firm they are considering hiring. This public record can be found at https://brokercheck.finra.org/. When seeking a new advisory firm, financial advisor, or brokerage firm, MDF Law strongly recommends dealing only with those entities that are registered with FINRA.
Through FINRA’s arbitration and mediation services, disputes can be resolved far more rapidly than through traditional litigation.
In many cases, litigation would not even be possible, because FINRA hears all cases that violate its code of conduct, not only those that violate the law of the land. An advisor who has violated the FINRA code of conduct, such as by not being entirely transparent about certain investments, but who has not violated federal or state law will not be tried in court. So, by dealing only with FINRA-registered advisors and firms, investors ensure they have recourse no matter what.
Arbitration and meditation are for reclaiming damages. Investors can request either service if they wish to recoup losses. Investor complaints are to report suspected fraud. FINRA would look into the suspected fraud and take disciplinary action as needed but they would not specifically seek out damages on behalf of defrauded investors.
Arbitration is more formal than mediation. Arbitration is a little like going to a traditional court, although the procedure is a bit faster. Decisions are handed down by one or more arbitrators and are binding.
Mediation is more informal. Participants enter into it willingly and must both agree on any settlement before it becomes binding. Mediation is voluntary and either party can stop at any time. In over 80% of FINRA mediation cases, a settlement is reached.
Virtual hearings are those conducted over video conferencing software. Currently, FINRA uses Zoom for virtual hearings.
FINRA implements certain security practices for these types of hearings, such as:
All FINRA Zoom hearings are carried out on US Data Centers.
As of December 31, 2021, 269 customer cases had at least one virtual hearing.
Of those arbitration cases that had at least one Zoom hearing, 131 customer claimant cases were decided on the merits. (To decide a case “on the merits” means those cases that were closed based on the evidence rather than on procedural grounds.) Of those decisions, 60 cases awarded the claimant damages, or 44 percent.
In 2021, FINRA had 1,895 new customer cases filed. (A “customer case” is one that is not held between firms, but rather between a customer/investor, and a registered FINRA member, whether a firm or an individual.)
The average decision time for all cases was 15.4 months. For “paper decisions”—those where no in-person hearing was necessary—the average was 5.1 months.
Special hearings, sometimes referred to as simplified hearings, had an average turnaround time of 8.8 months. Special hearings are heard entirely telephonically; each side has only two hours to present its case; no cross-examination is allowed; 30 minutes is allowed for rebuttals. Special hearings are completed in a single day and contain a maximum of two hearings.
2021 saw 9% fewer customer cases filed than in 2020.
A total of 4,029 cases were closed in 2021. This includes intra-industry cases.
The type of complaint is called a controversy. Each case might have multiple controversies.
The most heard controversy is Breach of fiduciary duty, with a total of 1,445 cases served in 2021.
“Breach of fiduciary duty” is one of those matters that is often unlikely to be tried in a court of law unless there was outright fraud involved. But by dealing with FINRA-registered advisors and firms, an investor does have recourse.
The second-most heard controversy is Negligence, with 1,371 cases containing this.
The other most popular types of controversies heard were:
Other controversies included violations of Blue Sky Laws, manipulation, elder abuse, churning, and unauthorized.
The most common securities types involved in customer cases were common stock (433 cases) and Real Estate Investment Trusts (429 cases). Business Development Company (BDC) cases reached 177, and private equity cases came fourth on the list with 161 cases served.
Of all the cases heard, both customer and intra-industry, 59% were directly settled by the parties involved, and 11% were settled through mediation.
The win-rate for customers is dismally low:
This low win-rate is too often attributable to advisors and firms having access to expensive legal defense teams while the customer does not.
Contact MDF Law if you need an attorney to handle a FINRA arbitration matter. Our attorneys have helped recover over $100 million on behalf of investors. Contact us today for a free consultation.
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