securities arbitration
Arbitration, Primer

What is Securities Arbitration?

Securities arbitration has become the most often-used method of resolving disputes in the securities industry. Since the late 1970’s,  FINRA and its predecessors have required brokerage firms and stock brokers into securities arbitration to resolve their disputes with each other, and with their customers. That requirement led to brokerage firms requiring, through their customer agreements, that their customers must use FINRA arbitration to resolve any dispute.

Mark J. Astarita, Esq., is a nationally recognized securities attorney who has represented parties in over 600 securities arbitrations. Be sure to read Overview of Securities Arbitration, his acclaimed analysis of the securities arbitration process, which has been downloaded tens of thousands of times.

Pre-dispute Arbitration ClausesSecurities arbitration

After much litigation and a decision by the United States Supreme Court, those arbitration agreements, known as “pre-dispute arbitration clauses” are valid and enforceable. Today,  mandatory arbitration clauses in other industries are being attacked by a variety of consumer groups, as being unfair to consumers, biased in favor of whatever industry is using the process, and a host of other allegations.

Securities Arbitration is Not Traditional Arbitration

Securities arbitrations are substantially different than other consumer arbitration procedures. While there are some issues with the process, the process bears no resemblance to the one being discussed by the anti-mandatory arbitration advocates.

Is Securities Arbitration Fair?

Every so often politicians, reporters, and investors start to complain that securities arbitration is not fair. Not so according to securities lawyer Mark Astarita who has represented investors, financial professionals, and brokerage firms in over 600 FINRA arbitrations. The process works well for most cases and is at least as fair as going to court. According to FINRA statistics, approximately 50% of all investor claims settle without a hearing, and investors receive compensation in half of the cases that go to a hearing. Assuming that the settlements were “wins” for the investors, that translates to a 75% “win” rate for investors.

Give up a Jury Trial?

The complaint that investors are giving up their right to a jury trial is true, but misleading. The simple fact is that jury trials are the exception in court cases, not the rule. According to the Annual Reports of the Administrative Office of the U.S. Courts (as referenced by an article from the Bolch Judicial Institute
Duke Law School)
approximately 1 percent of all civil cases filed in federal court are resolved by trial, and only 0.7 percent are decided by juries. Less than 1% of court cases actually get to a jury.

While it certainly is a perceived benefit to have a trial by a jury, the simple fact is that you are not going to get there, and if you do, it will take years. With motions to dismiss, motions for summary judgment, motions to file amended pleadings, and motions to reargue motions that were denied, the process in court gets bogged down. And even if the plaintiff makes it through all of those motions, the final step before getting to a jury is the settlement conference, where a judge attempts to get the parties to settle the dispute. And a judge can be very persuasive in settlement discussions.

Motion Practice 

In FINRA arbitrations, there are very limited motions to dismiss. Very limited, so much so as to be non-existent. And there are no motions for summary judgment. While that might be a perceived benefit, it has problems of its own, but the parties will get their case decided by a panel of arbitrators – a panel that they had a significant role in choosing.

My article, Introduction to Securities Arbitration, is a walk-through of the entire process and has been downloaded tens of thousands of times. I update it as needed, and it is available here.

Recent Blog Posts

Arbitration Claims Filed Against Stifel Broker Chuck Roberts

A veteran financial advisor with Stifel Nicolaus & Co. Inc. is facing a rash of investor complaints stemming from the sale of structured notes, the performance of which is typically tied to an underlying asset, such as a specific stock or an index like the S&P 500 stock index. According to an article in InvestmentNews, Miami ...

What Does a Securities Lawyer Do?

Mark J. Astarita, Esq. is a nationally recognized securities attorney, representing clients in securities investigations, arbitrations and litigation matters across the country. You can contact him at 212-509-6544 or by email at While securities law is itself a specialized field of law, there is more than one type of securities lawyer. There are transactional securities ...

What is Securities Arbitration?

Securities arbitration has become the most often-used method of resolving disputes in the securities industry. Since the late 1970’s,  FINRA and its predecessors have required brokerage firms and stock brokers into securities arbitration to resolve their disputes with each other, and with their customers. That requirement led to brokerage firms requiring, through their customer agreements, ...

Securities Arbitration Overview-2023 Update

Securities Arbitration is not like any other proceeding    Background Arbitration is a dispute resolution process, which is an alternative to the traditional lawsuit in court. Rather than have a matter decided by a judge and jury, participants to an arbitration proceeding have their dispute resolved by an impartial panel of one or three arbitrators. Virtually every dispute ...

Tips for a Successful Securities Mediation

Tips for a Successful Securities Mediation Securities arbitration is a proven method for resolving disputes in the securities industry. It is a quicker and more cost-effective alternative to traditional court proceedings. With increasing frequency, investors and advisors are turning to mediation to make the process even more effective. Mediation is a form of alternative dispute resolution that ...

What is FINRA

FINRA, the Financial Industry Regulatory Association, is the successor to the National Association of Securities Dealers and is authorized by Congress to regulate and oversee the broker-dealer industry, insuring that it operates fairly and honestly. It oversees over 4,000 brokerage firms and more than 600,000 brokers across the country—and analyzes billions of daily market events. What ...

UBS Pays $14.1 Million Defamation Award to Compliance Officer

After years of appealing the arbitrators’ decision, UBS finally pays. The appeals of the original arbitration award increased the amount UBS had to pay by a reported $3 million. According to AdvisorHub, in his arbitration complaint filed in June 2018, the compliance officer alleged UBS defamed him on his U5 termination filing, which accused him of ...

Morgan Stanley Deferred Comp Claims

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UBS YES Losses?

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Amazon Ends Mandatory Arbitration – Consumer Benefit?

By now every Amazon customer is aware that Amazon has changed its terms of service to remove the pre-dispute arbitration agreement. Many consumer advocates are praising the move, but have they really analyzed the change? I have represented parties in over 600 securities arbitrations, and a handful of commercial arbitrations. My readers know that I am ...

Featured Articles

Customer Claims in Arbitration

I have been representing customers and brokers in securities arbitration matters since 1982. In those 35 years I have handled over 700 securities arbitration cases. Since securities arbitration is such a large part of my practice, I also survey all of the arbitration awards that are entered in matters across the country, write columns for investors and brokers on the topic, and stay well informed on developments in this unique area of law. Today, FINRA administers virtually all of the securities arbitration disputes in this country, with the AAA and JAMS handing the remainder. From my work, and my review of the statistical summaries published by FINRA it is clear that investment disputes fall into very well-defined categories. Naturally, the type of cases that are filed is a function of the market. Not only are there fewer arbitrations when the markets are doing well, economic factors create different types of claims. For example, when Internet stocks fell in April 2000, the arbitration forums saw a significant increase in arbitration filings, and the emergence of a new category of claim, for over-concentration, or failure to diversify. As the markets improved in 2003, through 2007, we saw a sharp decrease in the number of arbitration ...

Expungement of Customer Complaints

You can remove derogatory reports from your CRD Report. Call 212-509-6544 to discuss the process with a securities law attorney. The problems associated with FINRA‘s CRD Disclosure System are well known to visitors to, as we have written about the issue a number of times. The concept of disclosing every allegation, justified or not, against a registered person, to anyone who cared to ask, is unheard of in our system of justice. The addition of BrokerCheck, where the information is available to anyone with an Internet connection has made the situation intolerable. For that reason, we are often asked to file an expungement request with FINRA, to remove unwarranted items from the CRD system The interests of investor protection overrode the concepts of fundamental fairness and due process for brokers, and today there is full disclosure of every wart, pimple and untrue allegation made against a broker. Not fair to the broker, but of a theoretical benefit to the investing public. Part of the problem are customer arbitrations. Customers can file an arbitration against a broker for anything, at virtually no cost to the customer. They can say anything they want, it doesn’t cost them anything, and there is no penalty for ...

Insider Trading – The Legal and Illegal

  Insider trading laws have a significant impact on the stock market and the conduct of investors. I have been representing investors and financial professionals in insider trading investigations and proceedings for over 30 years. It all started in the late 1980s when my then-partner and I represented a financial printer in an investigation that lasted for years and ended in a three-week SEC federal court proceeding. Since then, my current partners and I have represented registered representatives and investors from all walks of life in dozens of investigations and enforcement proceedings. We have won a few, but our best work is when we are able to avoid an enforcement proceeding from even starting. The insider trading laws and court decisions have changed dramatically over the decades, with the SEC and the courts expanding the scope of the theory of insider trading beyond all reasonable bounds. However, it is this concept that we need to deal with, and we have had a great deal of success in defending potential defendants – because the investigation gets closed before a case is filed. Illegal insider trading is a serious securities law violation that carries potential civil and criminal penalties. Civilly, the penalties can be as large ...

Introduction to Blue Sky Laws

Mark Astarita, Esq. is a nationally recognized securities attorney who represents investors, financial professionals, issuers and financial firms in a wide variety of matters involving federal and state securities laws. He can be reached at The state securities laws and the regulatory scheme has not changed much since 2001 when I published the first version of this Blue Sky Law introduction. While the SEC directly, and through its oversight of the FINRA and the various Exchanges, is the main enforcer of the nation’s securities laws, each individual state has its own securities laws and rules. These state rules are known as “Blue Sky Laws”. What Are Blue Sky Laws? Blue sky laws are state regulations established as safeguards for investors against securities fraud. The laws, which may vary by state, typically require sellers of new issues to register their offerings and provide financial details of the deal and the entities involved. As a result, investors have a wealth of verifiable information on which to base their judgment and investment decisions. Why “Blue Sky” laws The origin of the term is a bit unclear, but the first use of the term that we are aware of is in an opinion of Justice McKenna of the United States ...

Federal Securities Law, a Securities Lawyer Guide

The SEC, FINRA, the States, and much more Introduction The history of securities regulation and federal securities law is well beyond the scope of this work, and the reader is commended to any one of a number of books in the area. One of the best-known, and often cited treatises on the topic is Loss and Seligman, Securities Regulation, a multi-volume treatise on the subject, published by Little Brown & Co in New York City. A single-volume version is also available and can be ordered online. For purposes of this work, it is sufficient to note that the federal securities laws are in reality a myriad of rules and regulations of 55 different regulatory agencies, including the Securities Commission in each of the fifty States, the District of Columbia, Puerto Rico and Guam, as well as the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and any of the regional exchanges of which he or his firm is a member. While this morass is in reality a series of similar, and overlapping regulations, the vast number of agencies is pointed out as a reminder that there are thousands of persons who are watching the industry, some more diligently than others, but the mere size of these entities is often enough ...

What is a Security?

A security is a form of ownership in an entity. While some believe that in order to be a security the instrument must be traded on a market, the legal definition of a security is much broader. The definition is important, because if the instrument is a security, then the federal and state securities laws apply to the purchase and sale of that instrument. We define and explain the different types of securities

Finders Explained – Be Careful

A question I am often asked is what is the definition of a finder, or questions that lead to that question. The issue arises when an unregistered person or entity introduces investors to an issuer and seeks to obtain payment based on the investment made by the investor. The problem is, that in many instances, the introducing party is acting in a manner that requires registration as a broker or a dealer, and thus must be registered in order to accept compensation for the introduction to the investor. The issues of finders and compensation are currently a “hot” topic for securities regulators, and the issue is in great flux today. It is, therefore difficult to describe finders in a general way that is helpful because the answer in a particular case will turn on the particular facts. One small factual change, and the answer changes. General Definition of a Finder Addressing the issue GENERALLY, he does not have to register if the finder is only a finder. Being a finder means that he only introduces; he does not discuss, negotiate, or get involved in the transaction. However, the SEC may take a different view of “discuss” or “get involved” than you do. Statutes and ...

Cold Calling Rules

Compliance with securities regulations is only the beginning By Mark J. Astarita, Esq. Introduction Cold calling is a method of marketing a service or product by calling prospective clients “cold” – that is, without an introduction, to determine if the potential client has a need for, or interest in, the caller’s product. Cold calling has a long history in the brokerage community, and while having a poor reputation, is a legitimate and valuable marketing tool for brokerage firms, and provides a legitimate source of information for customers, provided the tool is not abused. However, there have been abuses, inside and outside the brokerage industry, of the cold calling procedure. Most of the complaints regarding the procedure have arisen outside the industry, and relate to the time of day that the calls are made, the use of automated dialers and similar technological “advances” in the telecommunications industry, as well as outright fraud. While these complaints have focused on non-brokerage industry firms and practices, the regulations regarding same effect the brokerage industry. The Basic Regulations and Rules In accordance with the Telephone Consumer Protection Act of 1991, the Federal Communications Commission (FCC) issued a cold-calling rule. The rule establishes procedures to eliminate unwanted telephone solicitations to residences ...

Churned or Traded?

Churning claims dominated the securities arbitration landscape in the 2000’s, but have declined over the years, as the trading mania waned. As the markets improved, we have begun to see a resurgence of churning claims again. The common perception among the general public is that a customer who trades his or her account on a regular basis is a broker’s dream. While the commissions generated by such activity might very well enhance a broker’s payout, the activity could very easily turn into a broker’s nightmare if not carefully monitored. Churning Churning is excessive trading in a customer’s account by a broker taken in the context of the customer’s financial situation and investment objectives. While no one test is available to determine if an account has been churned, churning requires three elements, first, excessive trading, and second, control of the account by the Registered Representative, and three, intent to defraud the customer. The intent element is difficult to prove, but will typically be proven by establishment of the first two elements. The problem with customers who trade heavily with a retail broker is that the broker may later be subjected to a claim for churning, if the trading does not turn out to be profitable. ...

Responding to a Wells Notice

By Mark Astarita Being the subject, target, or even a witness in an SEC or a FINRA investigation is not a pleasant experience. As I discussed in my column “When the SEC Comes Calling” a financial professional’s involvement in a regulatory investigation or proceeding is extremely serious, and can be a career busting event. Receiving a Wells Notice could be worse. Interested readers should also read Tips for Responding to an SEC Subpoena. Be Prepared While careful preparation and use of experienced counsel is the key to a successful outcome, prospective defendants (who are called respondents in these types of proceedings) have a valuable tool in their arsenal when dealing with the regulators – the Wells Submission. My partners and I have been involved in hundreds of investigations with FINRA and the SEC. While we are often able to head off an investigation before we reach the Wells Notice stage, we have made countless wells submissions. If you have an SEC or an 8210 Request from FINRA, call us before you respond. We may be able to save you time, and your license. Wells Notice The process starts with a Wells Notice – a notification from a regulator that it intends to recommend that enforcement ...

Mark J. Astarita, Esq. is a securities lawyer who represents investors, financial professionals and firms in litigation, arbitration and regulatory matters across the country. He is a partner in the national securities law firm of Sallah Astarita & Cox, LLC and can be reached by email at or by phone at 212-509-6544.

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