Financial advisors and brokerage firms recognize that the Financial Industry Regulatory Authority (FINRA) aims to protect the public from negligent, reckless, or unethical activity. When FINRA receives a customer complaint, you may find yourself at the center of arbitration proceedings. FINRA puts all arbitration matters in the hands of a panel of independent arbitrators that considers all of the evidence, deliberates, and issues an award. However, if you wish to challenge the award or make sure it is enforced, it’s important to understand your options for obtaining your desired outcome. Enlisting the support of an experienced securities law attorney is the best way to ensure you proceed with clarity and confidence. Below is a brief overview of how FINRA handles arbitration matters and how you can take steps to challenge or enforce an arbitration award.
How FINRA Handles Arbitration Proceedings
When a dispute arises, FINRA sends the matter to a panel of independent arbitrators for resolution. This panel reviews the parties’ pleadings, hears arguments, considers any documentary or testimonial evidence, and issues a final decision. This decision, called the “award,” is legally binding on all parties involved. It’s important to note that although FINRA may provide an arbitration forum (in accordance with the Securities and Exchange Commission’s rules), FINRA plays no role in influencing or determining the final decision.
FINRA’s Arbitration Awards
When the panel of independent arbitrators issues an award, they must put it in writing. However, arbitrators are not obligated to provide explanations or reasons for their decision. The panel has thirty business days from the date the record closes to issue the award. Once rendered, the award becomes final and binding. FINRA then sends copies of the signed award to each party (or each party’s representative) and makes the award publicly available online. In the majority of cases, the award is not subject to review or appeal. Of course, there are circumstances in which a party may seek to challenge or enforce the arbitration award. Still, it’s best to consult a knowledgeable securities law attorney to discuss your options before moving forward.
Pursuing a Challenge to a FINRA Arbitration Award
Although FINRA does not provide an appeals process for those seeking to challenge an award, federal and state laws specify that certain grounds may entitle a party to take the matter to a district court. District courts have the authority to vacate or overturn an award if certain criteria are met, such as:
- The award resulted from corruption, fraud, or undue means
- The arbitrators displayed clear and evident partiality or corruption
- The arbitrators were guilty of misconduct in some way (i.e., refusing to postpone a hearing despite sufficient cause, refusing to hear pertinent evidence, etc.)
- The arbitrators overstepped their authority or failed to arrive at a mutual, final, and definite award
- The arbitrators failed to follow clearly defined laws or legal principles
- The award lacked factual or reasonable basis
If a party can make a case for any of the above circumstances, they may appeal the arbitration award and seek to have the ward vacated or overturned. The party seeking to challenge the award must file a motion to vacate with the court, which can either vacate, confirm, or modify the award.
Understanding the Federal Arbitration Act (FAA)
According to the Federal Arbitration Act (FAA) and the Global Arbitration Review, arbitration awards are typically not permitted to be appealed. However, the FAA does allow for the setting aside of awards in cases of “manifest disregard of the law” or other clear violations of applicable laws and procedures. Seeking to have a FINRA arbitration award challenged or enforced can be a confusing and difficult process, so you should discuss your situation with a trusted securities law attorney to explore your options and identify the most strategic path forward.
Enforcing an Arbitration Award
FINRA rules state that industry parties must pay arbitration awards within thirty days. Failure to comply with this requirement may result in suspension by FINRA. It’s essential to recognize that FINRA has the authority to suspend or cancel the registration of a financial advisor or brokerage firm should that party fail to uphold its arbitration award obligations. If FINRA accuses a brokerage firm or financial advisor of failing to comply with an arbitration award, they may defend themselves in the following ways:
- Stating that they paid the award in full
- Showing that the parties agreed to installment payments
- Demonstrating that the brokerage firm or broker has filed a timely motion to vacate or modify the award (and such motion has not been denied)
- Showing that the broker or brokerage firm has filed a bankruptcy petition and the process is pending (or that the bankruptcy court has already discharged the award)
FINRA arbitration proceedings can quickly escalate and become confusing, but you should recognize that you do not have to navigate this process alone. Reach out to an understanding and experienced attorney who can answer your questions, address your concerns, and help you obtain a fair and favorable outcome.
Call Judex Law, LLC, today at (303) 523-4022 to discuss your concerns with a dedicated and friendly securities law attorney.