The FINRA Arbitration Process: A Step-by-Step Guide

When investors suffer losses due to broker misconduct or securities fraud, the Financial Industry Regulatory Authority (FINRA) arbitration process offers a specialized forum for seeking recovery. Understanding this process is essential for investors considering legal action against brokers, investment advisors, or brokerage firms. This comprehensive guide walks you through each phase of FINRA arbitration from initial consultation to award enforcement.

Initial Consultation and Case Evaluation

The FINRA arbitration process begins with a thorough evaluation of your potential claim:

Documentation Review

Our securities attorneys conduct a comprehensive review of:

• Account statements showing transaction history and performance
• New account forms documenting your investment objectives and risk tolerance
• Trade confirmations detailing specific transactions
• Marketing materials provided by your broker or advisor
• Communications between you and your financial professional
• Portfolio performance compared to appropriate benchmarks

Preliminary Damages Assessment

Based on this documentation, we:

• Calculate direct financial losses resulting from the alleged misconduct
• Assess opportunity costs compared to appropriate investment alternatives
• Evaluate potential recovery under various legal theories
• Provide a realistic assessment of strengths and challenges in your case

Eligibility Determination

We verify that your claim meets FINRA’s eligibility requirements:

• Confirmation that your dispute involves FINRA member firms or registered representatives
• Verification that claims fall within the six-year eligibility period
• Assessment of any potential jurisdictional challenges

This initial consultation process typically takes 2-3 weeks, depending on the complexity of your investment history and the availability of complete documentation.

Filing the Statement of Claim

If we determine you have a viable case, the next step is preparing and filing a Statement of Claim:

Statement of Claim Preparation

The Statement of Claim is a detailed document that includes:

• A comprehensive narrative of the facts surrounding your investments
• Specific allegations of misconduct (e.g., unsuitable recommendations, churning, misrepresentation)
• Legal theories supporting your claim
• Calculation of damages with supporting methodology
• Request for relief (specific compensation sought)

FINRA Online Portal Submission

Your Statement of Claim is submitted through FINRA’s online DR Portal along with:

• Required filing fee (typically around $1,000-$1,500 depending on the amount claimed)
• Submission Agreement formally consenting to arbitration
• Supporting exhibits and documentation

FINRA typically processes new filings within 3-5 business days, at which point your case is officially opened and assigned a case number.

Respondent’s Answer

After your Statement of Claim is served, the respondent(s) must respond:

Answer Timeline

• Respondents have 45 days from service of the Statement of Claim to file their Answer
• Extensions are commonly requested and often granted for an additional 30 days
• Failure to respond can result in default proceedings

Answer Content

The respondent’s Answer typically includes:

• Responses to each allegation in your Statement of Claim
• Affirmative defenses (legal and factual arguments against your claims)
• Potential counterclaims if the respondent believes you owe them money
• Third-party claims if they believe others share responsibility

Our Response Strategy

After receiving the Answer, we:

• Analyze each defense raised and prepare counterarguments
• Identify key disputed facts requiring additional evidence
• Refine our case strategy based on the positions taken by respondents
• Prepare for the initial prehearing conference

The answer phase typically takes 45-75 days from when the Statement of Claim is served.

Arbitrator Selection

The selection of knowledgeable and fair arbitrators is critical to your case outcome:

Panel Composition

Depending on your claim amount:

• Claims under $50,000 are decided by one arbitrator (simplified arbitration)
• Claims between $50,000-$100,000 have one arbitrator unless all parties request three
• Claims over $100,000 are decided by a panel of three arbitrators

Selection Process

FINRA provides a list of potential arbitrators (typically 10-15 candidates) from which:

• Each party ranks their preferences and strikes unacceptable candidates
• FINRA combines the rankings to determine the final panel
• We research each potential arbitrator’s background, experience, and prior decisions
• We strategically rank arbitrators based on factors likely to benefit your specific case

Arbitrator Types

For three-person panels, the composition typically includes:

• One chairperson (experienced arbitrator qualified to lead proceedings)
• One public arbitrator (no connections to the securities industry)
• One non-public arbitrator (securities industry experience), though parties can opt for all public arbitrators

The arbitrator selection process usually takes 30-45 days to complete.

Initial Prehearing Conference (IPHC)

Once arbitrators are appointed, they conduct an initial prehearing conference:

IPHC Format

This telephone conference with arbitrators and all parties:

• Lasts approximately 30-60 minutes
• Establishes the procedural framework for your case
• Sets important deadlines and hearing dates
• Addresses preliminary issues or disputes

Key Determinations Made

During the IPHC, the panel establishes:

• Discovery deadlines and parameters
• Motion deadlines
• Hearing dates (typically 6-12 months after the IPHC)
• Location of the hearing
• Special procedural requirements
• Whether mediation will be attempted before arbitration

Strategic Importance

This conference provides an opportunity to:

• Make a positive first impression on the arbitrators
• Advocate for procedural rules favorable to your case
• Gauge the panel’s approach to case management
• Identify potential biases or concerns with panel members

The IPHC typically occurs 2-3 months after filing your Statement of Claim.

Discovery Phase

The discovery phase involves exchanging relevant information and documents:

Standard Discovery

FINRA’s Discovery Guide specifies documents that must be exchanged in customer cases:

• Account statements and confirmations
• New account forms and agreements
• Correspondence between parties
• Supervisory records and compliance documents
• Internal reviews and investigations
• Commission and compensation information

Additional Discovery Requests

Beyond standard discovery, we may request:

• Specific communications relevant to your investments
• Training materials provided to brokers
• Information about similar complaints
• Due diligence files on recommended investments
• Performance data for comparable clients

Discovery Disputes

If respondents fail to provide requested information:

• We file motions to compel production of withheld documents
• The arbitration panel rules on disputed requests
• Sanctions may be imposed for non-compliance

The discovery phase typically lasts 3-6 months and is crucial for building a strong case.

Prehearing Preparation

Thorough preparation before the hearing is essential for success:

Expert Witness Selection

If your case would benefit from expert testimony, we:

• Identify qualified experts with relevant credentials
• Work with experts to develop clear, compelling opinions
• Prepare expert reports explaining technical aspects of the case
• Anticipate and address potential challenges to expert testimony

Witness Preparation

We prepare you and other witnesses by:

• Conducting thorough preparation sessions
• Reviewing likely questions from both sides
• Practicing effective communication techniques
• Preparing for cross-examination challenges

Exhibit Preparation

We organize compelling exhibits including:

• Timeline graphics showing key events
• Charts comparing your portfolio to appropriate benchmarks
• Highlighted account statements showing problematic transactions
• Visual representations of complex financial concepts
• Interactive financial models demonstrating damages

Legal Strategy Refinement

Based on all information gathered, we:

• Develop the most persuasive legal theories
• Prepare comprehensive opening and closing statements
• Create detailed examination outlines for all witnesses
• Anticipate and prepare responses to opposing arguments

Prehearing preparation intensifies in the 2-3 months before your hearing.

The Arbitration Hearing

The hearing is where your case is formally presented to the arbitration panel:

Hearing Format

FINRA arbitration hearings follow a structured format:

• Typically held at a FINRA office or hotel conference room
• Generally last 3-7 days depending on case complexity
• Proceed similarly to a trial but with more flexible rules
• Are not open to the public

Typical Hearing Sequence

The standard sequence of events includes:

1. Preliminary motions and evidentiary rulings
2. Opening statements from both sides
3. Claimant’s case presentation (your side)
4. Respondent’s case presentation
5. Rebuttal witnesses if necessary
6. Closing arguments
7. Panel questions and deliberation

Evidence Presentation

Unlike court proceedings, FINRA arbitration has relaxed evidentiary rules:

• Technical objections are less common
• Hearsay evidence is often permitted
• Arbitrators have broad discretion in what they consider
• Focus is on the relevance and reliability of information rather than strict admissibility

Post-Hearing Process and Award

After the hearing concludes, the arbitration panel deliberates and issues its decision:

Award Timing

• Arbitrators typically issue decisions within 30 days of the hearing’s conclusion
• The decision is called an “award” regardless of whether you win or lose
• Awards are delivered to all parties simultaneously through FINRA

Award Format

FINRA arbitration awards include:

• Names of parties and their representatives
• Summary of issues presented
• Damages and fees awarded (if any)
• Brief explanation of the decision (if requested by all parties)
• Signatures of the arbitrators

Award Analysis

Upon receiving the award, we:

• Explain the implications of the decision
• Discuss any further actions required
• Advise on collection procedures if you’ve won
• Evaluate any grounds for challenging the award (rare and limited)

Award Enforcement and Collection

If you receive a favorable award, the final step is ensuring payment:

Voluntary Compliance

Most brokerage firms comply with awards promptly because:

• FINRA member firms must pay awards within 30 days
• Failure to pay can result in suspension or expulsion from FINRA
• Regulatory consequences create strong incentives for payment

Court Confirmation

If necessary, we can convert the award to a court judgment by:

• Filing a petition to confirm the arbitration award in state or federal court
• Obtaining a court judgment (typically a straightforward process)
• Using that judgment to pursue traditional collection methods

Collection Methods

If the respondent doesn’t voluntarily pay, enforcement options include:

• Asset seizure and garnishment
• Property liens
• License suspensions
• Regulatory enforcement assistance

The post-award phase typically takes 30-90 days, depending on whether the respondent pays voluntarily.

Advantages of Working with Experienced FINRA Attorneys

Navigating the FINRA arbitration process requires specialized knowledge:

Specialized Expertise

Experienced FINRA attorneys provide:

• Deep understanding of securities regulations and industry practices
• Familiarity with FINRA rules and procedures
• Knowledge of effective arbitration strategies
• Experience with similar cases and fact patterns

Strategic Guidance

Throughout the process, our attorneys:

• Identify the strongest legal theories for your specific situation
• Determine optimal timing for settlement discussions
• Make strategic decisions about discovery priorities
• Select the most effective experts for your case

Maximizing Recovery

Our approach is designed to maximize your potential recovery through:

• Comprehensive damages calculations
• Strategic arbitrator selection
• Effective witness preparation
• Compelling presentation of evidence
• Skilled negotiation during settlement discussions

Contact Our FINRA Arbitration Attorneys

If you’ve suffered investment losses due to broker misconduct or securities fraud, our experienced FINRA arbitration attorneys can help you navigate the recovery process. We offer confidential consultations to evaluate your potential claim and provide guidance on your options.

For more information about the FINRA arbitration process or to discuss your specific situation, contact our office today.