Mitigating financial fraud allegations with FINRA ADR

On Behalf of | Aug 29, 2022 | Firm News

If you are a Financial Industry Regulatory Authority registered broker, you may have come across an unhappy customer or two. Investing involves risk, but not every client truly understands that risk means they could lose their money. Especially after a historic bull run like the one we have seen over the past couple of years, some New York City metropolitan area clients just feel like stocks only go up.

Unfortunately, that is simply not the case, and downturns can cause some clients to claim you, or your brokerage, have committed fraud. Luckily, FINRA has an Alternative Dispute Resolution process that mitigate these allegations.

An ADR Overview

FINRA ADR refers to arbitration and mediation, which are both separate and distinct processes that resolve disputes between brokers/brokerages and their investor clients. For ADR, the investor files an arbitration claim, and for mediation, the investor files a mediation request within six years of the alleged New York City metro area bad act.

General complaints versus mediation and arbitration

Investors could just file a general complaint against you or your firm through FINRA’s Investor Complaint Center. If they want some kind of monetary relief, then they file for mediation or arbitration. Theoretically, they could file for mediation/arbitration and an investor complaint.

FNRA arbitration

FNRA arbitration is a lot like going to court, in that it is a proceeding before an arbitrator that acts like a judge (neutral third party), but it is less expensive and takes much less time. Both sides present their cases to the arbitrator (sometimes in-person, but not always), who then makes a final and binding decision. Rather than years or decades, FNRA arbitration takes about 16 months from filing the New York City metro area claim to a decision.

FNRA mediation

Another ADR process is FNRA mediation. It is much more flexible than arbitration, and it can be initiated at any point prior to arbitration case’s conclusion. In this process, a neutral, third-party mediator, trained by FNRA, facilitates negotiations with all the parties. Their goal is to facilitate a resolution that is mutually acceptable to all the parties. To that end, a mediated agreement is only enforceable, if all the New York City metro area parties agree. And, more than 80% of mediations end in settlement, which is much faster than court or even arbitration.