Arbitrating a Case in the FINRA Forum, 1116 SCBJ, SC Lawyer, November 2016, #28

AuthorTina Cundari, J.

Arbitrating a Case in the FINRA Forum

No. Vol. 28 Issue 3 Pg. 28

South Carolina BAR Journal

November, 2016

Tina Cundari, J.

FINRA stands for Financial Industry Regulatory Authority. FINRA administers the largest dispute resolution forum in the country for the securities industry. Virtually all disputes between investors and their financial advisors are arbitrated in this forum.

You are a litigator. You have handled a variety of cases over the course of your career, including complex business disputes. You are familiar with the rules of civil procedure and have tried cases in state and federal court. One day a client asks you to handle a case that is pending in the FINRA forum. You pause and get a sinking feeling in your stomach. You have no idea what FINRA is or what it stands for.

Having been that lawyer, I am writing this article to share with you what I have learned arbitrating cases in the FINRA forum. Fortunately, the first time I handled a case in this forum I had a client who was familiar with the forum and who was willing to guide me through the process.

Let’s start with the basics. FINRA stands for Financial Industry Regulatory Authority. It is a self-regulated, membership-based organization that creates and enforces rules based on federal securities laws. FINRA administers the largest dispute resolution forum in the country for the securities industry. This forum is designed to resolve securities-related disputes among investors, investment firms (sometimes “broker-dealers”), and individual financial advisors or stockbrokers (“registered representatives”). Investment firms that are members of FINRA and customers who have accounts with those firms are required to use FINRA’s forum to resolve disputes.

In many ways, arbitrating a case in the FINRA forum is no different than trying a case in court. Have a theme. Keep it simple. Know the documents. Retain expert witnesses if needed. Draft an opening statement and a closing argument. Conduct direct and cross examinations. Address and object to evidentiary issues. Be prepared to dedicate the same amount of time and energy as you would in a case that is going to trial.

Although there are many similarities between trying a case in court and arbitrating a case in the FINRA forum, there are many things that are different. Here are some tips for first-timers and seasoned practitioners alike.

1. Consult the website.

The FINRA website provides a wealth of information that will help you in preparing and arbitrating a case. The address is Among other things, the website contains an overview of the arbitration process, written materials and videos regarding what to expect, the rules governing the securities industry and disputes, prior arbitration awards, and information about member firms and brokers.

One very useful tool is called BrokerCheck. BrokerCheck allows you to research the professional backgrounds of firms and brokers t o see whether they have any other complaints or disciplinary actions pending against them. You should always search BrokerCheck for the individual broker and investment firm involved in your case, as well as any witnesses who are in the securities industry. Incidentally, this is also a handy tool to research your own financial advisor if you have one.

2. Know the rules.

The rules of procedure can be found on FINRA’s website. There are two types of rules governing disputes: the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes. A customer dispute is a dispute between a customer and a member firm or a person associated with a member firm. An industry dispute is a dispute between members, whether it be two member firms or a registered representative (employee) and a member firm. Know...

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