In the last several years, the news has been filled with articles about stocks, bonds, mutual fund companies and the financial markets. The period from 2000 to 2002 was tumultuous.
After years of gains, the market, as a whole, suffered tremendous reversals and losses. Since then, the markets have seen recovery but remain volatile.
It was from 2000 to 2002 that investors, stockbrokers and registered representatives of financial advisory firms became involved in disputes. Customers focused on losses in their accounts. Representatives, many times, focused on issues related to being terminated from their firms or issues that occurred as they changed firms.
The majority of these disputes were resolved in the National Association of Securities Dealers arbitration. NASD Dispute Resolution Inc. (NASD) is the forum in which customers who have complaints about their accounts file the majority of disputes. Over the last 10 years, virtually all of the firms in its account-opening documents have instituted a provision that requires arbitration, many times specifically the NASD.
The NASD has a system of arbitration that provides a forum for a customer who has a complaint. This process is initiated by filing a statement of claim, to which the brokerage firm and a particular broker have the right to respond. There is a limited exchange of documents that occurs during this process, and then a hearing is held in front of an arbitration panel.
For smaller claims, those under $25,000, a single arbitrator — with or without a hearing — presides over the dispute. For claims in excess of $25,000, up to three arbitrators may hear the case.
The panel is traditionally comprised of one industry arbitrator and two public arbitrators. An industry arbitrator is someone who is currently or has been so affiliated with the securities industry. Public arbitrators encompass a wide variety of individuals — businessmen, lawyers, accountants — who take a training course from the NASD to serve as arbitrators.
Once all of the documents have been exchanged, a hearing is scheduled. Evidence in the form of live testimony and documentary evidence is presented before the arbitration panel. These arbitrations can last, depending on the size of the case, from one or two days to a week. In large cases, it can sometimes take 15 to 20 hearing days.
At the conclusion, the arbitrators confer and render a decision. These awards are generally considered final. There is no specific right of appeal but there is a very limited ability for any party who is dissatisfied to go to court to have the arbitration award vacated and struck down.
If there are disputes between a broker and his firm related to his employment or other issues, those, too, are handled within the context of NASD arbitration.
The number of cases in the NASD system has grown exponentially each year since 2001. As a result, this process, which initially was thought to be a fast, cost-effective method, has become lengthy. The typical time to get to hearing after an arbitration claim is filed is from 12 months to 18 months.
In addition to offering the arbitration process, the NASD also offers parties a mediation system that can be used separately or in parallel with the arbitration process. Thus, the NASD has a complete system for resolution of disputes, whether for public customers or industry members.
Gary A. Barnes is a partner at Gambrell & Stolz LLP, where he practices law in the areas of civil litigation, security arbitration and bankruptcy. Reach him at (404) 221-6509 or [email protected].
