Securities Litigation vs. Securities Arbitration

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Relationships between investors and broker-dealers or financial advisors are defined by contracts. Somewhere within the contract, if it was written within the last 10 or 15 years, there is most likely an innocuous-looking paragraph labeled “Arbitration” or “Forum Selection” or “Dispute Resolution.” It may be a very short paragraph, but if a dispute arises, you can expect it to have a major impact on where your claim is heard.

Today, most disputes between investors and securities professionals go to arbitration because arbitration is usually made mandatory in the contract. However, some contracts, especially older ones, do not include an arbitration clause, leaving the door open for the investor to file a lawsuit in state or federal court; in other words, to pursue traditional litigation.

The securities arbitration and litigation lawyers at Girard Bengali, APC, have extensive experience representing investors in every available forum, including state and federal courts and various arbitration arenas (FINRA, JAMS, AAA and more). We tailor our approach to fit the varying expectations and procedures in each forum, and our attorneys have developed a reputation for effective advocacy in all settings.

What Are the Differences Between Arbitration and Litigation?

Arbitration has become popular in many types of legal disputes in the 21st century. In the securities industry, most contracts require investors to bring their claims in an arbitration forum operated by FINRA, one of the organizations created to oversee the securities industry at large.  There are many significant differences between going to arbitration and going to state or federal court:

  • Arbitrators do not have to explain their decisions: Judges in courtrooms issue lengthy explanations laying out the law and rationale for their decisions. But in arbitration, the arbitrators are not required to provide any explanation. A party can request an explanation, but it may or may not be provided.
  • Evidence rules are different: Courts abide by formal Rules of Evidence, but arbitrators do not. This can be both good and bad; more information is usually good, but not if the quality or veracity of the information is questionable.
  • Discovery is limited in arbitration: Courtrooms follow formal discovery procedures that dictate what information the parties are required to exchange and when. It also allows parties to use multiple discovery devices, such as interrogatories, requests for admissions and depositions, that you normally do not see in arbitration.  In arbitration, each side is limited in the kinds of discovery tools available and what kind of evidence can be requested or required.
  • Depositions are usually not allowed in arbitration: Depositions, which involve lawyers questioning clients and witnesses to gather information and evidence from them, are a standard part of litigation, but they are rare in arbitration. FINRA arbitrations allow depositions only in limited circumstances, such as if a party is elderly or ill.
  • Appeals are rare in arbitration: The losing party in a regular trial usually has the opportunity to appeal to a higher court if they wish, but most arbitration decisions, with some very limited exceptions under state and federal law, cannot be appealed.

What Are the Advantages of Arbitration Over Litigation?

Since FINRA arbitration is the most likely forum for resolving your securities dispute, you may be interested to know whether you can expect any advantages from the process. The answer is yes, there are some advantages. Although FINRA arbitration is the most common, certain advantages of arbitration apply in many JAMS and AAA arbitrations as well.

  • The parties in FINRA arbitration get to participate in deciding which arbitrator(s) will hear their case, unlike in court, where cases are assigned to a judge and litigants usually have no control.
  • Arbitration is usually confidential from start to finish, unlike in court, where case filings are open to the public.
  • The procedures in arbitration are usually more flexible, so there are more opportunities to find efficiencies and get cases finished faster.
  • Lower costs are possible in arbitration. Court cases can drag on for years, driving up attorneys’ fees and other costs, whereas arbitration is typically faster, resulting in less expense.

No matter what forum hears your dispute, it is crucial to have an advocate on your side who has extensive knowledge and experience, who knows how the system works and can make it work for you to the best possible outcome.

Contact Our California Securities Lawyers to Learn More About Arbitration and Litigation

The attorneys of Girard Bengali, APC, have decades of experience representing investors in court and in all types of arbitration. If you have suffered investment losses that you believe were caused by misconduct by a financial professional, don’t hesitate to reach out to us. Schedule a meeting with one of our lawyers in San Francisco, Los Angeles or Newport Beach, by calling 866-778-6821 or send us an email. We’ll have a confidential meeting to review your situation and explain your legal options.

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