When a dispute occurs between a financial adviser or brokerage firm and an investor, the investor may choose to take legal action. While some legal disputes are addressed in a court room based on the decision of a jury or judge, there are alternative dispute resolution approaches that are often used in securities matters. Arbitration is one of those.
In an arbitration an arbitrator is tasked with determining the outcome of the dispute. That decision is not appealable to a court and is difficult to have vacated. Though having a decision vacated is not easy it may be accomplished. This is illustrated in the decision of a state court located in another state. The court recently vacated an arbitration decision.
The root of this case was an alleged loss of $1.6 million the man said he experienced as a result of trades that were made through his brokerage account. He said several trades were executed despite that fact that he had only limited funds. In fact, some of the checks he wrote bounced. As a result of the actions taken by his broker, the man sought $3 million. He was awarded $9,900 instead.
In addition to this situation being unique because of the difficulty in having an arbitration decision vacated, it was also interesting because the investor who sought to have the decision vacated had actually been on the winning end of the Finra arbitration board’s decision. Despite winning, the investor sought the decision because of the size of the award he was slated to receive. He said the $9,900, did not cover his trading losses. He also asserted that the way in which the arbitrators were selected was flawed and one of the arbitrators on the Finra arbitration panel did not disclose a conflict of interest.
As a result of the court’s decision, the man will receive a new arbitration hearing. This is not the outcome the man was initially seeking. He was hoping for a trial. How this second arbitration will be resolved or if the man will succeed in securing a trial, remains to be seen.
Source: The Wall Street Journal, “Investor Challenges Finra Arbitration Win,” Matthias Rieker, Sept. 9, 2014