The Investment Loss Recovery Process

When deciding to pursue an investment loss claim, it is important to understand where the claim needs to be filed, and what to expect.

If your investment losses occurred with a traditional, licensed brokerage firm, then your claim will most likely need to be filed with FINRA Dispute Resolution, which is the largest forum for resolving investor related disputes in the U.S.

If your financial planner was not FINRA licensed then your investment loss claim can be filed in state or federal court

An Overview of the FINRA Forum

Most brokerage firms require their clients to sign arbitration agreements, meaning that in the event of an investment related dispute, the parties agree to submit the claim to binding arbitration before FINRA.

FINRA is an acronym for the Financial Industry Regulatory Authority. FINRA gets its authorization to regulate the brokerage industry from the Securities and Exchange Commission. FINRA has two primary roles pertaining to investors; it investigates wrongdoing by registered representatives and brokerage firms, and has the authority to discipline them by fining, suspending or barring them from the securities industry. The other area where FINRA helps investors is by providing an arbitration forum to adjudicate investor disputes. FINRA Dispute Resolution is the largest customer-broker dispute resolution forum in the country, with an average of 20 cases filed in the forum every day.

Once a complaint is filed with FINRA it is served on the broker and his or her firm. From that point they have 45 days to answer the claim. Once the answer is received FINRA begins the arbitrator selection process by sending the parties a list of potential arbitrators. The parties have an opportunity to strike and rank arbitrators on the list, and after returning the list to FINRA, a panel is constructed from the arbitrators chosen by the parties.

Thereafter, an initial pre hearing conference is held telephonically between the lawyers for the parties and the arbitration panel. At this “IPHC” dates are selected for the arbitration hearing, and deadlines are set for the filing of motions and the propounding of discovery requests. Generally, the arbitration hearing is set approximately eight months from the IPHC, making the FINRA process much quicker than the typical court case. FINRA’s policy is to hold the arbitration hearing in the closest major city to where the customer resided at the time of the transactions at issue in the claim.

Twenty days prior to the hearing the parties need to exchange all documents and the names of witnesses they intend to call at the hearing.

At the hearing, after initial introductions and opening statements, the witnesses are sworn and the Claimant proceeds by putting on his case, by calling his witnesses to testify under oath, and by introducing evidence relevant to the dispute. These witnesses are then subject to cross examination by the Respondents. At the conclusion of Claimant’s case, the Respondents have an opportunity to put on their evidence. When both sides are done, the parties are allowed to sum up the evidence by giving closing arguments. The arbitrators then close the matter, and in private, outside the presence of the parties, begin discussing how they intend to rule.

Typically within 30 days FINRA sends the parties the arbitration award which sets forth how the arbitrators ruled, and whether the Claiamnt is entitled to any money. If the Claimant has prevailed the Respondents have 30 days to pay the award. If they fail to do so, FINRA will suspend their licenses, and they will be unable to do business.

Awards are binding, and the grounds for overturning awards are very limited. Few awards are challenged in court, and the success rate for overturning binding arbitration awards is under 5%.

If a Respondent has left the industry and refuses to pay the award, a Claimant can take the award into court and have it “confirmed.” This process takes about 60 days, and at the conclusion, the award is turned into a judgment, which then can be enforced against the Respondent via recording with the county recorder, used to place garnishments on wages, or used to attach bank accounts.