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Stockbroker Arbitration: Investors File Arbitration Claims to Recover Money

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New York, NYInvestors who trust their money to a stockbroker or financial firm may not realize that in their contract is a clause forcing them to file a stockbroker arbitration to resolve any disputes. Although lawsuits have been filed against financial firms, many require their clients to take allegations of stockbroker fraud through a stock fraud arbitration process.

Financial Industry Regulatory Authority (FINRA) arbitration is commonly used to settle disputes involving investors and the people or firms they trust their money to. Financial firms often have a pre-dispute arbitration clause, which means that clients are expected to file their claims with FINRA rather than with the courts.

"FINRA member brokerage firms universally require customers to sign pre-dispute arbitration agreements as a condition of opening an account," Christopher Gray, attorney with the Law Office of Christopher J. Gray, P.C., says. "These arbitration clauses require that all disputes be resolved via FINRA arbitration and have been universally enforced since a U.S. Supreme Court decision called Shearson/American Express v. McMahon back in 1987. The courts in the US almost uniformly will enforce pre-dispute arbitration clauses with very few exceptions so they [clients] will be expected to arbitrate rather than litigate."

Arbitration can be positive for the investor. FINRA arbitration decisions are almost always binding, which means that an appeal can be filed only in very limited circumstances. In the courts, even if an award is given to the plaintiff, the financial firm can file appeal after appeal and hold off actually paying out the award. With FINRA, if the financial firm loses, it has a limited amount of time to pay the investor.

The FINRA process also tends to be faster than the court process. A court case can take years from the filing date to be over. In FINRA, many cases are either decided or settled within 14 months.

And, although many people tend to link the courts with high awards, FINRA also has the authority to grant large-scale awards. Recently, a FINRA panel reportedly ordered a financial firm to pay $8.1 million to investors, who alleged the firm breached its fiduciary duty.


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