The Difference Between FINRA Arbitration and Lawsuits

FINRA stands for the Financial Industry Regulatory Authority, an organization that provides certification standards for financial industry professionals and helps customers and consumers of financial products get help with scams, fraud, and other issues.  One of the services they provide is arbitration options for investors who were taken advantage of or financially harmed by brokers and financial advisors.  The FINRA arbitration lawyers at Epperson & Greenidge represent people in their FINRA claims and can explain what FINRA arbitration is and how it differs from a lawsuit.  If you or a loved one was placed into an unsuitable investment, or was a victim of fraud or unauthorized transactions committed by a stockbroker or financial advisor, you could be entitled to file a claim through FINRA.  Talk to our attorneys for a free consultation and more information.

What is FINRA Arbitration?

Arbitration is a form of “alternative dispute resolution” (ADR).  When there is a legal dispute between two or more parties, there are dozens of options for how to resolve the dispute beyond going to court.  In many cases, the two parties can communicate with each other and come to an arrangement about what to do.  In many cases, these disputes will end with a “settlement” where each party agrees to set aside their claims for certain considerations, e.g. monetary damages, performing a contractually obligated task, or stopping something unwanted.  If these parties cannot agree, they may need other parties to step in instead.

There are usually 3 options people commonly use for third parties that can help resolve legal disputes.  First, they may use a neutral mediator.  Many experts and lawyers step in to help with mediation, acting as a neutral third party who can suggest potential resolutions to the dispute and help each side understand the other side’s issues.  FINRA offers mediation between investors and brokers, but FINRA’s mediation system is completely voluntary, and either side can walk away at any point.  Alternatively, for a more binding resolution, disputes can either go to court through a lawsuit or to arbitration.

Through arbitration, the case goes before a neutral third party known as an arbitrator.  Unlike mediation, both sides in the dispute are under contractual obligations to submit to the arbitrator’s judgment.  Because financial professions are certified through FINRA, FINRA has the power to demand certain standards from brokers and financial advisors, one of which is the demand that they submit to arbitration through FINRA for any disputes.  If you go to FINRA as an investor harmed by financial negligence or unsuitable investments, you can choose to submit your case through their process and agree to any outcomes.

How FINRA Arbitration and Lawsuits in Court Are Different

Although arbitration is an “alternative” form of resolution in that it does not involve going to court, its processes and practices are very similar to a lawsuit.  In both a lawsuit and arbitration, the outcome is binding.  This means that, unlike mediation, you can rely upon the arbitrator’s decision to have legal force behind it which can require the broker or financial advisor who harmed you to pay you damages and perform other acts to repair the damage.

The basis for a claim through FINRA is different than the basis of a lawsuit.  In a lawsuit, you look to the law of the land for the rules that the defendant should have followed.  This means that federal or state law is controlling, and there must be some rules that were specifically broken.  In addition, the laws must also create a “cause of action” that allows you to take the rulebreaker to court.  Under arbitration, FINRA’s rules are controlling.  Since FINRA’s standards are usually more strict than legal standards, there may be additional opportunities for claims that the law does not recognize.

Filing deadlines are different between many lawsuits and FINRA claims.  Every lawsuit you can file under state or federal law has a “statute of limitations” which limits how long you have to get your case filed in court.  In many breach of contract claims and financial cases, the statute of limitations is usually anywhere from 2 to 6 years depending on the specific state or federal rules.  FINRA’s rules allow you 6 years to file your claim, regardless of the nature of the claim.  Further, investments purchased outside of the 6-year window may still be eligible for a FINRA arbitration claim, depending on the facts of your case.

One last difference is in the format of the case.  In court, you can often choose to have a trial by jury if the case concerns a high enough dollar amount.  Many people choose “bench trials” instead, so that the judge, who is more experienced with the claims, can analyze the facts instead of a jury.  In arbitration, your case is heard by either a single arbitrator or a panel of 3 arbitrators.  In any case, these arbitrators are financial experts and industry professionals who understand the claims, rather than laypersons or general judges who may not have the same training and understanding of the case.

FINRA Arbitration Lawyers Offering Free Consultations

If you or a loved one suffered financial harm because of their broker or financial advisor’s illegal or unethical practices, talk to an attorney today.  The FINRA claims lawyers at Epperson & Greenidge are available for free consultations and can help you decide the best options for filing your claims.  For a free consultation on your case, call our law offices today at (877) 445-9261.