Articles Posted in FINRA

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FINRAFINRA has released its annual examination priorities letter.  The letter identifies the specific areas FINRA will be focusing on when it conducts examinations of its member brokerage firms in the coming year. According to FINRA, the list is developed based on trends it has seen in the previous year, as well as concerns expressed to FINRA by brokerage firms, investor advocates, and other regulators.  In 2017, FINRA has said it will pay particular attention to the following items, among other things:

High-Risk Brokers

Statistics show that brokers who have committed misconduct against customers are more likely to commit additional violations in the future. FINRA will closely examine the supervisory procedures of brokerage firms who hire or retain brokers with a significant history of prior sales practice complaints. Specifically, FINRA will be checking the adequacy of the firm’s procedures to detect and prevent future misconduct by recidivist brokers.

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When you open a brokerage account, you most always agree to bring any future disputes that arise with your stockbroker or brokerage firm to FINRA for adjudication. This means you give up your right to a jury trial.

FINRA offers both arbitration and mediation services. In a nutshell, mediation is where a neutral third-party attempts to help the parties reach an amicable settlement. Essentially, the mediator points out what he or she sees are the strengths and weaknesses of each party’s position. In arbitration, one or three arbitrators (depending on the amount in dispute) hear testimony, review evidence, and render a binding decision. It is possible to utilize both methods in the same case.

Here are some of the main ways that arbitration and mediation differ.

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Yes, technically, but in reality, no.  Under the law, a FINRA securities arbitration award can be appealed, but practically speaking, arbitration awards are rarely changed when appealed.   Indeed, under the Federal Arbitration Act and the Florida Arbitration Act, a party has the legal right to file an action in court to vacate or modify an arbitration award.  Arbitration awards, however, are very difficult to overturn or modify.

Indeed, federal and state courts give substantial deference to an arbitration panel’s award, notwithstanding that arbitration panels are not necessarily bound to follow the law and can even misapply it with impunity.  Instead, an arbitration panel may enter an arbitration award that it believes results in a fair or equitable outcome.

FINRA Securities Arbitration Award

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An investor who is abused by his or her securities broker cannot sue in court.  Instead, the investor must sue the broker or the brokerage firm in arbitration before the Financial Industry Regulatory Authority, otherwise known as “FINRA.”

FINRA maintains its own arbitration forum that shares certain features of court litigation, but is also different in many material ways.  Here are seven key differences between FINRA arbitration and litigation in court:

  • First, FINRA staff processes the claim filed by the customer against the broker or firm and administers the entire case, not the clerk of court.
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Virtually every new account application with any brokerage firm contains a pre-dispute arbitration agreement. This agreement requires that any dispute you have with your stockbroker or brokerage firm be filed with the Financial Industry Regulatory Authority (“FINRA”) instead of being filed in court. The FINRA arbitration process differs from the court system in several key aspects: the case will be decided by 1 or 3 arbitrators instead of a jury; there are no depositions or interrogatories permitted in FINRA arbitrations (with very limited exceptions); FINRA arbitrations are not a matter of public record (the only aspect of FINRA arbitration proceedings that is made public are the awards); and there are extremely limited grounds for appealing a FINRA arbitration award.

The way a FINRA arbitration case generally works is this.

Claimant files the initial document that begins the FINRA arbitration called the Statement of Claim.  It identifies the parties, contains the allegations of wrongdoing, and sets forth the amount of damages being claimed.  Once it is filed with FINRA, FINRA will serve it on the named Respondent.   The Respondent then has forty-five (45) days to file a Statement of Answer.

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According to the Financial Industry Regulatory Authority (FINRA), it has fined MetLife Securities, Inc. (MetLife) $20 million and ordered it to pay $5 million in restitution for misrepresenting and omitting material information in connection with variable annuity switches.

FINRA found that, during the period 2009 to 2014, MetLife misrepresented the costs and guarantees of its customers’ existing variable annuity contracts in a whopping 72 percent of the 35,500 replacement annuity contract samples reviewed by FINRA. According to FINRA, MetLife made the replacement annuities sound more beneficial for the customers even though the replacement annuities usually cost more than the customers’ existing annuities.  Annuity switches generated around $152 million in gross dealer commission for MetLife over a six-year period.

Some of the examples of misconduct cited by FINRA in its news release include:

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Securities arbitration is the legal process by which most disputes between customers and brokerage firms are resolved.  Arbitration is an alternative to traditional litigation, which takes place in a courthouse before a judge and jury.

When a person goes to arbitration, he or she is giving up, or surrendering, the right to have a dispute heard by normal court or jury. For this reason, arbitration can only happen by agreement of the parties, usually by way of a signed arbitration agreement.

Many businesses today insert an arbitration clause into the boilerplate language of their agreements with customers. The brokerage firm industry is no exception. The new account paperwork for almost every brokerage firm in the United States contains a mandatory arbitration clause.

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The Financial Industry Regulatory Authority (FINRA) recently released its annual list of regulation and examination priorities for 2016.  As usual, there are many recurring themes from previous years’ lists, with a few new items thrown in for good measure. Here are some of the things FINRA will be focusing on this year when it examines its member firms:

Brokerage Firm Culture

Are control functions valued within the firm?

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Brokerage Firms | West Palm Beach False Claims Act

The Financial Industry Regulatory Authority, also known as “FINRA,” provides a public database that investors can use to research their brokers’ professional background and disciplinary history.  Investors can learn important information such as:

  • Whether the broker has been sued by other investors;
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West Palm Beach Arbitration Lawyers

If  you have a brokerage account with a major brokerage firm in the United States today, you have almost certainly agreed to resolve any dispute through mandatory arbitration.  This means you cannot take your case to a courthouse to be heard by a jury.  Instead, you must take your case to arbitration before the Financial Industry Regulatory Authority, also known as FINRA.   (By the way, the brokerage firm you are suing is also a member of FINRA.)

For decades, lawyers who represent investors in these arbitration proceedings have railed against the inherent unfairness of the proceedings.   Statistically, investors would be far better off taking their dispute to a regular court to be heard by a regular jury.