Securities Arbitration and Litigation

The securities lawyers at Lubiner, Schmidt & Palumbo have successfully represented both aggrieved investors seeking to recoup significant losses and brokerage firms and their financial advisors against claims filed by clients and in industry disputes.

Customer - Initiated Arbitrations

For decades, customers have been required to submit any disputes relating to their brokerage accounts to arbitration by the terms of their client agreements. These arbitration clauses tell investors that by signing the client agreements:

  • they give up the right to sue the brokerage firm in court;
  • arbitration awards are final and binding;
  • discovery in arbitrations, compared to court, is limited; and
  • arbitration claims must be filed with the Financial Industry Regulatory Authority ("FINRA").

A customer initiates an arbitration by filing a claim with FINRA's arbitration office (and is then referred to as the "claimant"). The claim will identify the brokerage firm that held her account and usually the individual broker or other firm employees who supposedly mishandled the account (the "respondents").

FINRA serves the claim on the brokerage firm and any individually named respondents. After service of the claim, the respondents have a specified time to submit answers to the claim to FINRA and the claimant (the respondents will almost ALWAYS be represented by an attorney, highlighting the need for a client to retain an experienced securities arbitration lawyer).

Customer arbitration claims will typically describe the various offenses committed by the respondents, such as churning/excessive trading, unauthorized trading, misrepresentation/omission, unsuitable trading, fraud, negligence, breach of fiduciary duty and failure to supervise.

Customers may also file claims alleging that the broker engaged in the prohibited practice of selling away/trading away or participated in a Ponzi scheme.

Customers also file claims as a result of losses sustained after investing in esoteric and complex alternative investments (known as Product Problem cases).

After the pleadings are served, FINRA begins the process of selecting arbitrators who will hear the case. Generally speaking, FINRA's roster of arbitrators is made up of "non-public" arbitrators related to the securities industry and "public" arbitrators with no affiliations to the industry. A panel will consist of either one or three arbitrators, depending on the dollar amount of damages. A customer arbitration panel with three members will have no less that two public arbitrators.

As mentioned earlier, discovery in FINRA arbitration is restricted and, for the most part, limited to the exchange of documents.

Several months after the pleadings are exchanged, a pre-conference telephone hearing will be held with the arbitrators and the attorneys for the parties. At that hearing a schedule for completing discovery, resolving discovery disputes and a hearing on the merits will be agreed upon.

Another difference between securities arbitration and practice in court is that the parties will not be contacted by FINRA or the arbitration panel to discuss early settlement of the claim. However, several years ago FINRA began a mediation program. The parties agree on a neutral mediator and engage in a non-binding mediation session led by the mediator. There are presently a large number of experienced FINRA mediators who conduct the mediations, a large percentage of which result in settlement of claims.

If claims do not settle before the hearing, parties will appear at the designated time and place to hold the hearing. The attorneys for the parties give opening statements. The claimant's attorney then presents her case, introducing documents and presenting witnesses. The respondents' attorney may cross-examine any or all of the claimant's witnesses.

The respondents then put on their case, through documents and witnesses. The claimant's attorney is permitted to cross-examine the respondents' witnesses.

The arbitrators themselves may ask questions of any of the witnesses.

At the conclusion of the testimony, the attorneys give their closing statements. The panel thanks the parties for their participation and excuses them from the hearing room.

The panel then deliberates and makes it decision. Typically, once the panel makes a decision, it takes three to five weeks to write up the decision, circulate it among the arbitrators for signature, etc.

The decision of the arbitrators is final and can only be appealed to a court on very limited grounds

After the resolution of a case, a broker may feel that he was wrongly named in the arbitration that, nevertheless, was reported on his U-4/5. The securities attorneys at Lubiner, Schmidt & Palumbo have successfully had CRD disclosures expunged from brokers' CRD history under FINRA's expungement rules.

As can be seen from above, there are many component parts to the conduct of a FINRA arbitration. For both claimants and respondents, it is essential to have the representation of experienced securities attorneys familiar with FINRA's arbitration program.

Industry Arbitrations

The securities attorneys at Lubiner, Schmidt & Palumbo have represented brokerage firms and their employees in multiple and varied arbitrations and litigations relating to the securities industry, including individual brokers faced with arbitration claims filed by former employers.

Frequently, brokers leave their firms to join a new firm while owing money to their prior firm under the terms of promissory notes or forgivable loans. The securities attorneys at Lubiner, Schmidt & Palumbo are experienced in both enforcing the terms of the notes or loans and in defending brokers against such claims.

Similarly, brokers almost always sign some type of employment agreement when they join a new firm. That agreement may contain non-solicit or non-compete clauses. If a dispute arises between the employee and his former employer, any claim must be filed with FINRA.

Often a broker leaves a firm under contentious circumstances. Firms are required to file U-5 termination notices reporting the broker's departure. The language placed on the U-5 can sometimes lead to disputes. The securities lawyers at Lubiner, Schmidt & Palumbo are experienced with U-4/5 defamation cases and will vigorously protect their clients' interests and reputation.

Similarly, if a broker was fired from her position, and believes she has a wrongful termination claim, Lubiner, Schmidt & Palumbo can act as counselors and advise as to the best possible course of action to take.