Facing an allegation of misconduct from the Financial Industry Regulatory Authority (FINRA) is a serious matter. The allegation may trigger an investigation, which could lead to formal disciplinary action. This could ultimately result in a settlement or litigation. But before that happens, those who receive notification of the accusation likely wonder what to do.
Should they litigate, settle, or is there another option?
Arbitration: the other option
Arbitration is a form of alternate dispute resolution available for FINRA disputes. Instead of going to court, those who choose arbitration use a neutral third party to help negotiate a resolution. This resolution, referred to as an award, is binding.
It is important to note that when it comes to allegations of misconduct involving FINRA, arbitration is one pathway, but not the only pathway. Some investors may also choose to file an official investor complaint. The complaint is like a red flag, where an investor would notify FINRA of potential criminal behavior. This could lead to an additional, occasionally federal, investigation while arbitration provides an investor the opportunity to recoup lost funds. As a result, a business or broker could find themselves facing two separate issues: a criminal investigation and arbitration.
The process
The arbitration process is often contingent on the amount of the claim. It generally requires an in-person hearing with three arbitrators making up a panel to help reach a resolution if the claim is over $100,000 while smaller claims only require one arbitrator and claims up to $50,000 can be resolved through simple review — they do not require an in-person hearing.
Those that face allegations of FINRA wrongdoing do not have to go through the process alone. You are allowed to hire legal counsel to help represent your interests and better ensure a more favorable outcome.