Investor Arbitration at FINRA & AAA - Transcript

Arbitration is a unique process that differs significantly from traditional courtroom litigation. Malecki Law, a leading securities law firm, is well-versed in representing clients in arbitration proceedings at FINRA and the American Arbitration Association (AAA). Unlike court cases, arbitration is a creature of contract, meaning access to these forums is governed by specific agreements. Understanding how arbitration works and who is subject to it is essential for both public investors and industry professionals.

Arbitration at FINRA or AAA isn’t open to everyone automatically. Instead, participation depends on contractual agreements or relationships that may exist between the parties involved. These agreements can be established in two main ways:

1. Pre-Dispute Agreements: These are often included in contracts signed before any conflict arises. For example, public investors typically sign arbitration agreements when opening a brokerage account, agreeing to resolve disputes with the brokerage firm through arbitration.
2. Post-Dispute Agreements: In some cases, both parties may choose to enter into an arbitration agreement after a dispute has already occurred, opting for arbitration over traditional litigation.

One of the distinct advantages of FINRA arbitration is that public investors can request arbitration even if they haven’t signed a pre-dispute arbitration agreement. Under FINRA rules, brokerage firms are required to arbitrate with their customers upon request. This rule makes arbitration more accessible and ensures that investors have an efficient and cost-effective forum for resolving disputes. Arbitration is generally faster and less expensive than court proceedings, which can be a significant benefit for investors seeking timely resolutions.

For industry professionals, the process is slightly different. When registering with a broker-dealer, professionals sign a uniform employment application known as Form U4. By signing this form, they agree to resolve disputes with customers, broker-dealers, and even issues related to their licenses, such as expungement of termination reasons or customer complaints, through arbitration.

FINRA arbitration also provides a mechanism for industry professionals to address disputes involving poor termination reasons or inaccurate information on their records. This is an essential tool for protecting their professional reputations and licenses.

Registered investment advisors (RIAs) generally operate under different arbitration agreements. Most RIAs include arbitration clauses in their client agreements, but these typically designate AAA as the arbitration forum rather than FINRA. However, AAA arbitration can be significantly more expensive than FINRA arbitration, which is a factor that both parties should consider.

Interestingly, FINRA does allow registered investment advisors to use its arbitration forum if both parties agree post-dispute. This provides an alternative to AAA and can make arbitration more accessible and cost-effective for public investors dealing with RIAs.

While both FINRA and AAA provide arbitration services, there are notable differences:

• Cost: AAA arbitration is generally more expensive than FINRA arbitration, making it less appealing for public investors who may already be dealing with financial losses.
• Accessibility: FINRA offers unique protections for public investors, including the ability to request arbitration even without a pre-dispute agreement.
• Scope: AAA arbitration is commonly used by RIAs, while FINRA arbitration is more prevalent among broker-dealers and industry professionals.

Arbitration offers several advantages over traditional litigation. It is typically faster, more cost-effective, and less formal, allowing parties to resolve disputes without the prolonged delays and expenses associated with court cases. For public investors and industry professionals alike, arbitration provides a practical and efficient way to address disputes while maintaining a level of confidentiality that is not always possible in court.

Arbitration can be a complex process with significant implications for your financial future and professional reputation. Malecki Law has extensive experience representing clients in arbitration proceedings at FINRA and AAA. Whether you are a public investor seeking to resolve a dispute or an industry professional addressing issues related to your license, our team can provide the skilled guidance and advocacy you need.

Contact Malecki Law at (212) 943-1233 to schedule a consultation and learn how we can help you navigate the arbitration process. Let us work to protect your interests and achieve the best possible outcome in your case.

Transcript:

It’s interesting to understand who is subject to FINRA or AAA arbitration and people get to those forums in different ways. Arbitration is a creature of contract so it’s not like a court where it’s open to everyone.

You have to have some sort of an agreement in order to get into arbitration. That agreement can come before the dispute when you contract with someone or after the dispute if both parties agree that they would rather do it in an arbitration forum.

For public investors, when they sign a new brokerage contract they generally sign something saying that they are willing to go to arbitration for any dispute between the brokerage firm and the public investor.

Uniquely at FINRA public investors even if they haven’t signed an agreement like that are able to request arbitration and the brokerage firm has to arbitrate with them.

That’s one of the benefits of the FINRA rules for arbitration, because arbitration is much less expensive and much quicker than going to court.

For an industry professional at the time that they signed their uniform employment application known as the form u4. They agree that any disputes they have with their their customers or with the broker dealer will be resolved in arbitration and that also includes disputes relating to their licenses such as expungement. If there’s a poor termination reason or a customer complaint on there they can seek expungement through the FINRA arbitration process.

If you’re dealing with a registered investment advisor most of those firms have arbitration agreements but not with FINRA, typically they do it with the triple A, what is as we call it the American Arbitration Association, and that is something that is a creature of contract as I said earlier it’s expensive.

The triple-A is much more expensive than FINRA and FINRA has agreed if post-dispute the parties agree to use FINRA as a forum for the public investors they lend their forum to registered investment advisors so that’s generally how people get into arbitration.