Joel Feldman

Anapol Schwartz

Date: 3/11/2005

Duration: 5:17

Joel Feldman explains the process involved when cases of individual investors are brought against their brokerage.firms.

Video Transcript

Hello, my name is Joel Feldman, and I head up the Securities, Litigation, and Stock Loss Department here at Anapol Schwartz. I'd like to take a few moments to explain to you the process involved when cases of individual investors are brought against their brokerage firms. These cases are not filed in the public court system, but instead go through an arbitration process. What I'd like to do is describe that process, and in doing so answer the questions that are most frequently asked by our investor clients.

Most of our clients ask, "Why can't I just sue the brokerage firm in court?" The reason is that when an account is opened with a brokerage firm, the client signs certain paperwork. Within this paperwork, often in fine print, is language that results in the client giving up their right to sue the brokerage firm in court. The paperwork binds the client to resolve all disputes with the brokerage firm in an arbitration hearing. This type of arbitration clause or agreement may seem unfair, but the courts have upheld it as valid.

What are the differences between arbitration and the public court system? Arbitration is generally viewed as being faster and cheaper than going through the traditional court system. Instead of having the case resolved by a jury with a judge presiding, the arbitration panel will consist of either one or three arbitrators that act as both judge and jury.

The arbitrators hear the evidence that is submitted by both sides in the case, rule on objections just like a judge would, and then render a decision that is binding on the parties. The decision is considered binding because it is much more difficult to appeal an arbitration decision than one rendered by a jury.

In an arbitration panel consisting of three arbitrators, there will be two public arbitrators and one industry person. The public arbitrators come from all walks of life, including accountants, attorneys, teachers, nurses, doctors, sales representatives, retired judges, and other types of professionals. The industry arbitrator is usually an active or recently retired member of a brokerage firm.

Unlike court proceedings, there are no depositions in arbitration, generally very, very limited motions, and rarely any appeals. The average length of time from the filing of the arbitration case until the hearing is about 12 months. This is quicker than many types of civil proceedings. As far as costs are concerned, the filing fee is approximately $1200, although the filing fee and other administrative fees can vary depending upon the size of the claim. Law firms handling these cases will advance those costs for the clients. Attorneys generally charge a percentage of the recovery, similar to how personal injury cases are handled.

The investors who have lost money begin the process by filing a statement of claim. The statement of claim describes the relationship between the investor and the brokerage firm, and sets forth why the investor believes the brokerage firm caused his or her losses, and also sets forth the dollar amount of the losses sought. If the claim is for under $25,000, it is submitted on the paper documents, and one arbitrator will decide the case without a hearing, based solely upon the documents filed by the investor and the brokerage firm.

After the statement of claim is filed, the brokerage firm files an answer. Discovery, or the exchange of documents, begins. Investors ask the brokerage firm to provide specific documents pertinent to their account, as well as specific documents that the brokerage firm has which set forth rules for handling accounts and protecting clients' investments. The brokerage firm will typically ask for financial statements and tax returns from the client.

A list of potential arbitrators, public and industry, is provided to the attorneys for both the investor and brokerage firm. The attorneys review pertinent biographical information concerning these arbitrators, as well as to some extent prior decisions or awards that the potential arbitrator has rendered.

The arbitrators are selected as a result of input from each of the attorneys. The arbitrators will then hold a telephone conference call with the attorneys, discuss the case preliminarily, set forth the schedule for discovery, and select an arbitration date that's convenient for all the parties. Arbitrations usually last between one and three days.

At the arbitration, the investor presents his or her case in a fashion similar to how it would be presented in the court system. However it is usually much quicker, and as I said before it's less expensive. In addition to the investor, other witnesses may include the financial advisor, supervisor of the financial advisor or branch manager, and expert witnesses for each side.

After the conclusion of the hearing, the arbitrators decide if the financial advisor or brokerage firm have done anything wrong, and whether damages should be awarded, and if so, in what amount. A written decision is provided to each side within 30 to 45 days. The arbitration word is final, and rarely can either side appeal from an adverse decision. Arbitration awards are generally paid within 30 days.

Should you have any questions about stock losses or the arbitration process, I encourage you to contact me. I hope that this explanation has helped you understand the differences between arbitration proceedings, and those proceedings that take place in the public court system. Thank you.