Articles Tagged with arbitrator

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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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According to Regulatory Notice 14-49 (“RN 14-49”) issued by the Financial Industry Regulatory Authority (“FINRA”), FINRA is increasing the pay for arbitrators assigned to hear FINRA cases and passing the costs of the increase on to the parties.  The new rule applies to all cases filed on or after December 15, 2014, it is not retroactive.

FINRA states that the arbitrator pay increase will be funded through higher surcharges and processing fees assessed to FINRA member firms, as well as, an increase in the claim filing fees paid by investors, FINRA member firms, and associated persons of FINRA member firms who initiate claims seeking more than $500,000 in damages or an unspecified amount of damages.  In addition, the per session cost of hearings with three arbitrators in claims of more than $500,000 will also be raised.

Currently, the honoraria paid to FINRA arbitrators is $200 for each hearing session in which the arbitrator participates, either by telephone or in-person.  One hearing session is any hearing lasting up to 4 hours.  Therefore, a full day of hearings lasting 8 hours is considered by FINRA to be 2 sessions. Under the new rule, the arbitrators will be paid $300 for each hearing session or $600 for a full day consisting of 2 sessions.  In addition, the Chairperson of the arbitration panel will be paid an additional $125 per day, up from the current $75 per day.  The pay for deciding a simplified case in which no hearings are conducted has also been increased from $125 to $350.

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According to Reuters and other news sources, a securities arbitrator has been removed from FINRA’s arbitrator roster after it was discovered that he allegedly lied about being a lawyer. A FINRA spokesperson reportedly confirmed to Reuters that securities arbitrator James H. Frank of Santa Barbara, California was removed from FINRA’s arbitrator pool in 2013.  Frank reportedly served as a FINRA arbitrator for 15 years and was involved in rendering approximately 38 FINRA arbitration awards.  

According to Reuters, in August 2013 after a FINRA arbitration hearing concerning an investment in a variable life insurance policy, the investor’s attorney Benjamin Blakeman became concerned about Frank’s behavior and hired an investigator to look into Frank’s background.  According to Frank’s Arbitrator Disclosure Report, he had received his law degree from Southwestern University School of Law and was licensed to practice in Florida, California, and New York.   Frank’s bio on Arias-U.S. reflects that he is Of Counsel with Proresolv Counsel, LLP.

According to InvestmentNews, Blakeman’s investigator discovered that the only California lawyer named James H. Frank was not the gentlemen serving as a FINRA arbitrator.  In addition, there were no lawyers by the name of James H. Frank registered in either Florida or New York.  Blakeman reportedly shared his investigator’s findings with FINRA and requested Frank’s removal from his arbitration case.