Whether you realize it or not, if you have an account with a brokerage firm, it likely includes a mandatory arbitration provision, which provides that you waive your right to file suit against the brokerage firm in court. Instead, all disputes with the brokerage firm will be submitted to arbitration through the Financial Industry Regulatory Authority (FINRA). FINRA (formerly known as the National Association of Securities Dealers (NASD)) is a self-regulatory organization, funded by the brokerage industry.
Arbitration differs substantially from bringing a case in Court. Among other things, rights to discovery are much more limited, there are no depositons, the record of the proceedings is not public record, and the outcome is decided by a panel of professional arbitrators, rather than a jury of your peers. Due to the differences in rules, procedures, and format, it is important for investors who bring FINRA arbitration claims to be represented by attorneys with substantial experience and familiarity with FINRA arbitration.
Forced arbitration has recently received increased attention by the press and politicians. This increase focus has arisen, in part, thanks to the #MeToo movement, which has brought attention to the forced arbitration of sexual harrasment claims by employees against their employers. As a result of the backlash, some employers, such as Google, Facebook and Uber have dropped, or limited, mandatory arbitration provisions in their employment contracts.
On April 2, 2019, at a Senate Judiciary Committee hearing on the Forced Arbitration Injustice Repeal (FAIR) Act, members of Congress from both parties, including Senators Lindsey Graham (R-SC), Corey Booker (D-NJ), Joni Ernst (R-IA), Richard Durbin (D-IL), along with Navy Reservist Kevin Ziober and Professor Myriam Giles (Benjamin N. Cardozo School of Law), each expressed concerns about forced arbitration.
The FAIR ACT would elimate forced arbitration for employment, consumer rights, antitrust and civil rights disputes and allow people to bring their claims in court. Until that happens, however, you are likely still bound by the arbitration clauses in your brokerage agreements and should consult with an experienced attorney to evaluate what rights you may have in the FINRA forum.
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