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8 Things to Know if You’ve Been Named in a FINRA Arbitration

finra arbitration process

Receiving notice that you’ve been named as a respondent in a FINRA arbitration case can induce panic. Dealing with any legal proceeding is daunting, but FINRA arbitrations have particular complexities.

Without proper guidance, the arbitration process can become extremely stressful and potentially damaging to your reputation and career.

If you find yourself on the receiving end of a FINRA claim, here are 8 critical things to keep in mind, according to veteran securities attorney Leila Shaver:

1. Immediately Hire Your Own Legal Counsel

The very first step upon learning you’ve been named in an arbitration claim should be engaging experienced legal counsel to represent you. Do not rely solely on legal representation from your broker-dealer or RIA firm.

While they may say they’ll handle the matter, their interests and yours could diverge at some point. You need an attorney who is laser-focused on protecting your individual rights and advocating for your specific interests in the proceedings.

An independent lawyer can review documents, guide your strategy, and ensure your voice is heard during settlement talks. Don’t leave yourself vulnerable by trying to navigate FINRA arbitration without your own legal expert in your corner.

2. Have a Professional Draft Your Response to the Claim

Upon receiving notice of a claim, you must draft a formal legal response known as the Answer. This initial Answer introduces you to the arbitration panel and presents your side of the story. It is not something to take lightly.

Many advisors, unfortunately, try to draft their Answers themselves to save money, but this can seriously backfire. An experienced attorney knows how to craft a compelling Answer that puts your best foot forward. They will also ensure important remedies like requesting expungement are included.

Your future is on the line, so get a legal pro to handle your Answer.

3. Be Sure to Request Expungement in Your Answer

Speaking of expungement, it is absolutely vital that you formally request expungement of the customer complaint from your CRD record in your Answer if appropriate. With impending rule changes that will make expungement more difficult, this arbitration case may realistically be your only shot at getting the complaint erased from your BrokerCheck profile.

No need to prove wrongdoing yet – just assert your intent to seek expungement through the process. An attorney can provide strategic guidance on pursuing expungement. Don’t accidentally lose this opportunity by omitting expungement from your Answer.

4. Take Time to Understand the FINRA Arbitration Process

The FINRA website provides helpful resources explaining what to expect at each step of an arbitration case. You should absolutely take time to understand the process and requirements.

For instance, FINRA provides clear details on what types of documentation you will need to turn over during the discovery phase. You don’t want to be caught unprepared and scrambling to meet discovery obligations. Be proactive in learning the arbitration timeline and expectations to avoid stress.

5. Ensure You are Involved in Any Settlement Discussions

The vast majority of FINRA arbitrations – around 90% to 95% – end up settling before reaching a hearing. Settlement talks will likely happen, either initiated by the claimant or your firm. Make sure you have a seat at the table instead of decisions happening behind your back.

Review settlement documents closely. Understand the amount, whether any admission of wrongdoing is involved, impacts on expungement rights, and your specific role. Don’t blindly trust your firm or the claimant to look out for your best interests in a settlement. Insist on having your securities attorney keep you informed and involved.

6. Provide Your Perspective in U4 BrokerCheck Comments

While named in an ongoing arbitration, it will have to be disclosed on your Form U4 and BrokerCheck profile. However, you do have a chance to tell your side of the story.

The “Broker Comment” section allows you to provide additional context about the case, your role, and the client’s motivations. Take advantage of this opportunity to offer your perspective, which prospective employers and clients will see. An attorney can help craft your BrokerCheck comments for maximum impact.

7. Remember FINRA Arbitration Awards are Nearly Impossible to Overturn

If a FINRA arbitration proceeds to a hearing and ends with an award, it is essential to remember that the award is basically final. Successfully appealing or overturning FINRA arbitration decisions is extremely unlikely, absent very narrow circumstances.

You have to go into the process with the mindset that the outcome will stick. This makes active participation and hiring expert counsel vital from the very beginning. Don’t wait until an undesirable award to start taking things seriously. Be vigilant from the outset.

8. Mentally Prepare for a Lengthy Process

FINRA arbitrations move slowly. The quickest cases wrap up in around 6 to 8 months if settled early. If a full hearing occurs, the typical timeframe is 12 to 15 months until there is a final award.

You will need mental endurance in addition to financial resources. Find healthy ways to cope with stress as the case winds through the system. Know that it is a marathon, not a sprint. Patience and perseverance will see you through.

Navigating FINRA arbitration without skilled legal guidance can spell trouble. Protect yourself by retaining experienced securities counsel from the very start. Don’t go it alone. With the right attorney in your corner, even difficult arbitrations can reach the best possible conclusions. Contact My RIA Lawyer for assistance with your FINRA arbitration.

Author Bio

Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.

Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.

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