Securities arbitration differs greatly from a typical civil court action. Recognizing these differences when presenting your case can be the difference between a monetary Award and having your case dismissed. Unlike court, where your target audience is a jury of laymen, unfamiliar with the law and your case, arbitration panels are typically made up of practicing or retired attorneys who have read all the pleadings in your case before ever seeing you. So how does an investor connect with and convince an arbitration panel to award damages? This article should provide a quick primer.
You get a call from your stockbroker saying he's found an incredible buying opportunity for you - an undervalued penny stock, a private placement, a non-public REIT or the like. After giving you some more details on why he recommends adding this new investment to your portfolio, you agree to make the purchase. A few months or a year goes by and suddenly that fantastic investment isn't performing like your broker said it would. It's become a huge drain on your portfolio and the money you were relying on for a family vacation, a new car or retirement has vanished.
You've been swindled by your broker and learn that, not surprisingly, his firm knew nothing about it. Worse yet, you learn that he never actually opened an account for you - "investing" your money in a Ponzi scheme, a phony-baloney high interest promissory note or a cure for Alzheimer's that the FDA knows nothing about - and sending you made up brokerage firm account statements.
While it is well known that the rules of evidence do not apply in FINRA arbitrations, most panel Chairs and arbitrators in general are attorneys and will often find it hard to discard those rules completely. There are certain circumstances where the rules of evidence can provide guidance for practitioners. The highest federal court in New York - the Second Circuit Court of Appeals - has spoken to the issue of the rules of evidence in arbitration.
As attorneys who represent customers of brokerage firms, we often receive calls from potential clients who appear to have a substantive case of merit. And then we ask them when the investment was made and that often raises the question: Do statutes of limitation apply to arbitrations as they apply in courts?