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FINRA Arbitration Claims: What You Need To Know

It is not unheard of for shareholders and investors to rely on investment brokers and investment firms for the management and possibility of growing their wealth and financial investments. These financial professionals are generally expected by their investor clients to take care of their wealth fairly and legally. Unfortunately, some scrupulous investment brokers and firms do not adhere to their ethical duties and responsibilities to their clients within the confines of securities law. In these circumstances, a shareholder or investor must file a FINRA Arbitration Claim against the investment broker or firm to assert their rights.

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FINRA Arbitration Claim

A FINRA Arbitration Claim is an action that an investor can file with FINRA to resolve their dispute with a securities broker or brokerage firm for the alleged mishandling of their financial investments. 

To initiate an action, the investor must file an arbitration claim or request with the FINRA Dispute Resolution Panel. For a FINRA Arbitration Claim to be valid, the alleged violation must have occurred within the past six years.

The Type Of Damages Available Through FINRA Arbitration Claims

Under the FINRA Arbitration Claim, the following damages are available to the claimant against the action against the respondent:

Actual Damages / Compensatory Damages

This damage refers to the monetary amount ordered by the panel to compensate the claimant for their loss based on the respondent’s actions or inaction. 

Actual or compensatory damages may include, but are not limited to:

  • Net Out of Pocket Losses: This is the claimant’s net out-of-pocket losses based on the assessment of the claim and evidence presented to the FINRA Arbitration Panel. 
  • The Benefit of the Bargain: This is the claimant’s expected investment value. 
  • A Well-Managed Portfolio Account: This is the difference between two factors:
    • what the claimant’s account made or lost due to the respondent’s illegal action
    • a well-managed portfolio that the claimant would have had made in the same time frame

Arbitration / Litigation Costs

This pertains to the costs incurred by the winning party for the litigation/arbitration of the case. This generally includes filing costs, copy fees, hearing costs, and other administration and substantive legal costs involved in the litigation or arbitration of the claim.

This type of remedy is typically requested by the winning party to be reimbursed by the losing party.

Recission

This damage or action is geared to restore the claimant’s financial situation before the respondent’s wrongful act. This could mean that the panel voids the illegal transaction, so the claimant is returned to the same economic status as if the respondent’s wrongful action had never occurred.

Disgorgement

Another remedy that the FINRA Arbitration panel can order is called disgorgement. This is when the panel orders the respondent to “disgorge” or pay back the illegal gains they received from the unlawful transaction.

This damage makes the wrongful acts unprofitable for the respondent and hopefully discourages brokers and brokerage firms from committing these illegal acts. Another critical thing to note is the panel can order disgorgement even if the claimant did not suffer any net out-of-pocket losses.

Statutory Damages

Statutory damages are those damages available to the claimant based on a law. Statutory damages are applied to each case based on what the statute requires.

Specific Performance

The FINRA Arbitration panel could order specific performance if they determined that monetary damages alone are inadequate to remedy the wrongdoing of the respondent. This type of damage typically requires that the respondent is made to fulfill their contractual obligation to the claimant.

Punitive Damages

Punitive damage is ordered to penalize the respondent for their illegal conduct. The application of this type of damage generally varies by state and jurisdiction.

Interest Inclusion

This remedy can only apply if the claimant explicitly requests the FINRA Arbitration Panel to include interest as part of the award.

To award these damages, the panel considers the following factors:

  • Any statutory or contractual basis that would allow interest to be granted;
  • The amount of or rate interest sought;
  • The date interest calculation commences; and
  • The date interest calculation would end.

Typically, the interest rate to be applied varies by jurisdiction and case, and its basis can range from those required explicitly by the states, the Internal Revenue Service rates, treasuring bills, or the broker’s interest rates to its customers for outstanding debts.

Generally, arbitrators apply the interest rate from when the contract was breached, or the time the panel determined that a debt is due or payable.

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