Know Your Enemy

As a recent article in US News & World Report reminded us, investors trying to win back their money after they've been the victimized by investment advisor misconduct are, well, kind of in a rigged game. That's because, whether they know it or not, when investors open an account with a brokerage firm, they most likely are required to sign a mandatory arbitration clause that causes them to waive their constitutional right to a jury trial, and binds them to FINRA's arbitration process instead. As the article's author notes, "So far, efforts to abolish this requirement—which is inherently unfair to investors—have been unavailing. The securities industry is a powerful lobby. The last thing they want is a forum where claims against its members will be judged fairly and impartially."

These mandatory arbitration clauses present a large hurdle for individuals who have been victims of broker misconduct, since arbitrators oftentimes rule in favor of the financial industry and deny the claims of victims entirely.  In fact, according to the statistics of FINRA's own website, "Results of Customer Claimant Arbitration Award Cases," over the past 5 years in cases decided by arbitrators, less than 50% saw monetary compensation awarded to Claimants (see table inset.)


nother important point is that investors who need to consult an attorney for a dispute with their financial adviser must be sure to ask any prospective attorney if he or she has experience representing customers in the FINRA arbitration process. The FINRA arbitration process contains many nuances that are unique to itself and not present in a typical commercial litigation lawsuit filed with the court.

Finally, nd in light of the award statistics cited above, it would be doubly wise to retain an attorney who has actually won a FINRA arbitration on behalf of an individual in the past. An attorney with a successful FINRA track record can not only more accurately evaluate the likelihood of winning an award, but he or she will possess the experience to know what it takes to win an award at a final hearing within this complex, opaque, and  suspect system that FINRA operates and the securities industry must be grateful for.

If you or anyone you know has been a victim of securities fraud or broker misconduct, please contact us for a free consultation.