What Does It Cost to File A Complaint / Statement of Claim Against a Broker in FINRA Arbitration

May 18, 2012 By Jay Eng

A customer seeking to recover investment losses caused by his stock broker’s misconduct must pay a filing fee to file his or her statement of claim and initiate the FINRA arbitration.  The FINRA filing fee can be higher than filing fees in state or federal court.  For example, the filing fee for a complaint in federal court in the Southern District of Florida is $350 (not including costs for serving the complaint).   The amount of FINRA filing fee depends upon the amount in dispute and can range from $50 to $1,800.

Amount of Claim                Filing Fee
$.01 to $1,000                           $50
$1,000.01 to $2,500                $75
$2,500.01 to $5,000                $175
$5,000.01 to $10,000              $325
$10,000.01 to $25,000            $425
$25,000.01 to $50,000            $600
$50,000.01 to $100,000          $975
$100,000.01 to $500,000       $1,425
$500,000.01 to $1 million       $1,575
Over $ 1 million                          $1,800
Non-Monetary/Not Specified $1,250

* The Amount of Claim does not include interest and expenses.  Also, in the arbitration award, the panel may order a party to reimburse another party for all or part of any filing fee paid.

(Source: FINRA Rule 12900)

What is FINRA Arbitration?

September 4, 2011 By Jay Eng

Arbitration is a contractual process to resolve disputes between parties in a private forum.  Typically, brokerage firms and customers will enter into a contractual agreement before the customer opens their brokerage account.  Most agreements include a provision which compels the parties to resolve certain disputes through arbitration rather than a judicial proceeding such as a lawsuit in a state or federal court.

The arbitration process is not public and imposes significant restrictions on a parties’ ability to conduct discovery, such as document requests and depositions.  Parties also lose the benefit of procedural and due process mechanisms such as appellate review.

In arbitration, a person or group of person is appointed to serve as the arbitration panel.  The arbitrators hear the arguments and review the evidence of all sides and then decides how the matter should be resolved.  Arbitrators are not required to be attorneys.  Finally, arbitration awards issued by arbitration panels are subject to review by a court only on a very limited basis.

FINRA REVISES DISCOVERY GUIDE FOR CUSTOMER ARBITRATIONS

May 5, 2011 By Jay Eng

For claims filed on or after May 16, 2011, the Financial Industry Regulatory Authority, Inc., (“FINRA”) has revised its Discovery Guide to provide additional guidance to parties and arbitration panels and FINRA reorganizes the Document Production Lists.

In Notice to Members 11-17 or NTM 11-17, FINRA articulates additional guidance concerning objections based on cost/burden, the consideration of firm business model and customer claims, requests for additional documents, confidentiality and privilege. FINRA also notes that it is replacing the current 14 Document Production Lists with 2 lists of presumptively discoverable documents in every customer case. See the new lists HERE.

FINRA’S NATIONAL ADJUDICATORY COUNCIL REVERSES HEARING PANEL’S FINDING OF FAILURE TO SUPERVISE

June 2, 2010 By Jay Eng

On Maarch 3, 2010, FINRA’s National Adjudicatory Counsel entered a decision reversing a Hearing Panel’s finding that the CEO and institutional sales desk manager for a broker-dealer failed to reasonably supervise an institutional sales trader. The NAC noted among other things that:

“It is clear to us that Market Regulation’s claims and the Extended Hearing Panel majority’s findings that [respondents] failed as supervisors are informed and colored in this case by their faulty views of [the sales trader's] conduct and a tenuous ‘industry standard’ that they claim limited the ‘profits’ he could garner for [the broker-dealer] from his trading.”

In the Matter of Department of Market Regulation v. Leighton and Pasternak, Complaint No. CLG050021 (NAC Mar. 3, 2010).

CITIGROUP FINED $1.5M OVER SUPERVISION ISSUES

June 1, 2010 By Jay Eng

On May 26, 2010, FINRA announced “that it has imposed a monetary sanction of $1.5 million against Citigroup Global Markets Inc. for supervisory violations relating to its handling of trust funds belonging to cemeteries in Michigan and Tennessee.” According to FINRA, “over a period of more than two years, Citigroup failed to reasonably supervise the handling of these accounts by inadequately responding to a succession of ‘red flags’ – failures that permitted the scheme to continue undetected until October 2006.” Among the “red flags” were “unusual transfers of cemetery trust funds to accounts opened in the names of third parties.”

See the Acceptance, Waiver and Consent (AWC) here.

JUDGE RAKOFF DISMISSES CASE AGAINST FINRA OVER MERGER OF NASD AND NYSE

March 3, 2010 By Jay Eng

On March 1, 2010, District Judge Rakoff issued an opinion in two federal cases concerning alleged misrepresentations in the solicitation of NASD shareholder votes necessary for the consolidation of the NASD and NYSE and formation of FINRA. In both cases, the defendants filed motions to dismiss arguing, among other things, that they were entitled to absolute immunity. In his opinion, Judge Rakoff agreed with the defendants stating:

Pursuant to the Securities Exchange Act of 1934 , 15 U. S .C. §§ 78a-7800 , the United States Securities and Exchange Commission is authorized to delegate certain regulatory functions to SROs, which are therefore considered ‘quasi-governmental’ bodies…. As a result , SROs and their offi cers are absolutely immune from private damages suits challenging official conduct performed within the scope of their regulatory functions.

Judge Rakoff concluded that “[i]t is patent that the consolidation that transferred NASD’s and NYSE’s regulatory powers to the resulting FINRA is, on its face, an exercise of the SROs’ delegated regulatory functions and thus entitled to absolute immunity.”

Standard Investment Chartered v. NASD, No. 07 Civ. 2014 (JSR) and Benchmark Financial Services, No. 08 Civ. 11193 (JSR) (S.D.N.Y. Mar. 1, 2010).

What is a FINRA Letter of Acceptance Waiver & Consent (AWC)

February 14, 2010 By Jay Eng

A Letter of Acceptance, Waiver and Consent is a mechanism provided under the FINRA Rule 9216 to permit the Department of Enforcement or Department of Market Regulation to resolve aa controversy between the Department and a member or associated person over a violation of of any rule, regulation or staturory provision, including the federal securities laws and the regulations promulgated thereunder, which FINRA has jurisidiction to enforce. See also FINRA Rule 9211.

Subsection (a) of FINRA Rule 9216 states in part as follows:

(1) Notwithstanding Rule 9211, if the Department of Enforcement or the Department of Market Regulation has reason to believe a violation has occurred and the member or associated person does not dispute the violation, the Department of Enforcement or the Department of Market Regulation may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member’s or associated person’s right to a hearing before a Hearing Panel or, if applicable, an Extended Hearing Panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed. Unless the letter states otherwise, the effective date of any sanction(s) imposed will be a date to be determined by FINRA staff.

In addition, a member or associated person who executes an AWC waives certain rights:

(2)(A) If a member or person associated with a member submits an executed letter of acceptance, waiver, and consent, by the submission such member or person associated with a member also waives:
(i) any right of such member or person associated with a member to claim bias or prejudgment of the General Counsel, the National Adjudicatory Council, or any member of the National Adjudicatory Council, in connection with such person’s or body’s participation in discussions regarding the terms and conditions of the letter of acceptance, waiver, and consent, or other consideration of the letter of acceptance, waiver, and consent, including acceptance or rejection of such letter of acceptance, waiver, and consent; and
(ii) any right of such member or person associated with a member to claim that a person violated the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144, in connection with such person’s or body’s participation in discussions regarding the terms and conditions of the letter of acceptance, waiver, and consent, or other consideration of the letter of acceptance, waiver, and consent, including acceptance or rejection of such letter of acceptance, waiver, and consent.
(B) If a letter of acceptance, waiver, and consent is rejected, the member or associated person shall be bound by the waivers made under paragraphs (a)(1) and (a)(2)(A) for conduct by persons or bodies occurring during the period beginning on the date the letter of acceptance, waiver, and consent was executed and submitted and ending upon the rejection of the letter of acceptance, waiver, and consent.

FINRA Rule 9126 (2).

FINRA INVESTOR EDUCATION FOUNDATION ANNOUNCES GRANTS FOR LAW SCHOOL CLINICS

January 29, 2010 By Jay Eng

On January 28, 2010, FINRA Education Foundation announced grants to create law school clinics at Florida International University, Howard University, Pepperdine University, and Suffolk University to provide legal assistance to “underserved investors involved in securities disputes.” These grants are intended to “help fill the gap in legal representation for investors with small claims who do not have the financial resources to obtain legal counsel.”

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