Why
NASD arbitration for investment fraud / stockbroker claims?
Virtually all stockbroker
claims have to be resolved by arbitration rather than court litigation.
Brokerage firms require
their customers
to sign agreements that include a section in which the customer (knowingly
or unknowingly) waives the right to go to court, and agrees to arbitrate
any disputes that arise. The US Supreme Court held in 1987 that
the arbitration provisions are valid and enforceable. Most stockbroker
 arbitrations
are filed with the NASD, although some are filed with the New York
Stock Exchange and other, smaller exchanges. Some
of this firm's cases are also resolved through “private arbitration” where
the parties agree to select arbitrators outside of the NASD or NYSE
programs.
How does NASD arbitration differ from court?
In arbitration, arbitrators, rather
than a judge or jury, decide your case. Most NASD arbitrations
involve three arbitrators,
two of whom
are considered “public,” with no ties to the securities
industry, and one of whom is “non-public,” and either
is or was employed by the industry, or has some other significant
connection. The arbitrators are usually familiar with the issues
presented in an arbitration and are sworn to decide cases without
bias. The arbitrators hear the testimony of witnesses, review the
account statements and other important papers that the parties submit,
and listen to the arguments of attorneys much like a court or jury
would — only the case is tried in a somewhat less formal conference
room setting rather than a courtroom. After the hearing is over,
the arbitrators issue a decision, which is binding on the parties.
If you win your case and the brokerage firm does not pay your award,
they are subject to suspension from the NASD until the award is paid.
Arbitrations are usually less expensive
and proceed more quickly than court cases. Court cases involve
discovery depositions, which
are expensive due to travel and court reporter costs. NASD arbitrations
prohibit depositions except in rare circumstances. Typically, it
takes about ten to 14 months for an NASD arbitration to get to trial
from the time that it is filed. In most courts, cases take longer
to get to trial.
Arbitration decisions are final and
binding. In fact, as a rule they are more final than court decisions,
because the grounds for
appeal in arbitration is extremely limited and very rarely succeeds.
Arbitrations are subject to review by a court only on a very limited
basis.
How Does Arbitration Work?
To start an arbitration, the investor
(known as the claimant), usually through a lawyer, files papers
with the NASD in New York that include
a Uniform Submission Agreement (USA) and a Statement of Claim.
In the USA, the claimant agrees to follow and be bound by the
NASD rules and the decision of the arbitrators. The NASD then serves
the claim on the stock brokers or financial advisors (known as
the respondents) that are being sued. Respondents then file an
answer to the claim and submit their own signed USA.
The two sides are then sent lists
of 15 potential arbitrators. The attorneys for each side
rank and strike the names on the list, based upon their knowledge
of and experience with the arbitrators. From the ranked lists prepared
by
each side, the NASD selects a panel of three arbitrators. Once the
panel is selected, NASD schedules an Initial Prehearing Conference
(IPHC). The IPHC is a telephone conference between the arbitrators,
the attorneys for the parties, and an NASD staff attorney. At the
IPHC, the parties agree upon the length and dates for the hearing
that will decide the claims.
To prepare for the hearing that will
decide the case, both sides participate in discovery of the evidence.
The two sides must exchange
pertinent documents and information that is needed to present, argue
and decide the case. Claimants are usually required to provide their
adversaries with portions of their federal tax returns, their investment
account statements and their correspondence with the firm. The respondents
are normally required to provide information about how the account
was supervised, the income the broker earned, other similar complaints
against the broker and other information pertinent to the claims
and defenses being made.
Twenty days before the hearing begins, each side is required to
disclose to the others the identity of all witnesses, and copies
of all of the exhibits they intend to offer at the hearing.
The arbitration hearing takes place
in a conference room in a hotel or office suite, or at the NASD
offices. Hearings are normally held
in the city where the customer lives. Hearings begin with opening
statements by each side. The attorney for the person making the claim
goes first, presenting the case, calling witnesses and introducing
exhibits. When the claimant's side rests, the respondent presents
its case. Then the respondent and claimant each give closing arguments.
The arbitration panel issues a written award, usually within a week
or two. Respondents have 30 days to pay any award made against
them.
Will my case definitely go to a hearing?
In the Banks' firm
practice, about half of the cases settle, and half go
to hearing.
In our experience, the respondents make offers to settle in virtually all of our cases. Fifty to seventy percent of our cases are settled to our clients’ satisfaction before the hearing, and those that cannot be settled are decided by the arbitrators after a hearing.
The Banks Law Office will assist you in
deciding how to respond to settlement
offers,
but the decision
is ultimately
yours to make.
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