Mediation has advantages for stung investors.

• Author: Eccleston, James

Byline: James Eccleston

As an alternative to arbitration, investors should consider agreeing to mediation of their investment-loss claims.

Investor arbitration claims have reached new highs. Through June of this year, 3,400 claims have been filed in arbitration with the National Association of Securities Dealers (NASD) alleging such things as churning (excessive trading), unsuitable investments and failure to disclose risks.

The arbitration process, though more informal than litigation in court, involves presentation of evidence to a panel of three arbitrators who decide the outcome.

Mediation is an appealing alternative.

It is true that NASD mediation is still in its infancy about 3 years old and parties submit only about 10% of their arbitration claims to mediation. But there are clear benefits to attempting to mediate a settlement.

Let's start with the success rate. Over the last three years, no less than 77% of all claims submitted to mediation resulted in a settlement.

As an NASD mediator as well as an advocate representing parties in mediation, I see three principal benefits of mediation. They are:

1) much lower cost;

2) party-controlled; and

3) confidentiality.

Regarding lower cost, it now is common for arbitration hearings to take three days. Few take less than two days. Many take five days or more.

By comparison, although some mediators are satisfied to mediate in bits and pieces over several days or weeks, most mediators recognize the great physics concept known as "momentum." They mediate a settlement, if one is to be mediated, in one day, even if that means working through the dinner hour.

Likewise, attorney preparation time (at your expense) for mediation is markedly less than attorney preparation time for arbitration.

As a rule of thumb, we estimate one (very long) day of intense preparation time for every day of arbitration or mediation. One can see how much preparation time is rendered unnecessary when faced with the prospect of a one-day mediation instead of multiple-day arbitration.

The second benefit is that the mediation process is party-controlled.

That means two things. First, the parties determine the outcome (settlement or no settlement, and the terms of any settlement). That process removes the decision-making from the "three strangers" (i.e., the panel of three arbitrators).

Second, the parties are allowed to vent their feelings, and vent their feelings in an informal setting. That is very different than the formal...