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Can I bring my investment loss case in court?

Most, but not all, cases for investment losses are subject to mandatory arbitration. This means these types of cases cannot be brought in state or federal courts, but rather, they must be brought before arbitration forums such as FINRA Dispute Resolution or the American Arbitration Association.
Whether a particular dispute is subject to arbitration depends on the contract between the customer and the investment firm or professional. Most customers receive investment advice from one of two places: (1) major broker-dealer firms such as Merrill Lynch, Smith Barney, UBS, etc., or (2) smaller Registered Investment Advisor firms.

Almost all broker-dealer firms include mandatory arbitration provisions in their customer agreements. When the customer signs up for an account, he or she agrees to arbitrate any dispute with the brokerage firm before FINRA Dispute Resolution. Likewise, many Registered Investment Advisors also commonly include mandatory arbitration provisions in their contracts with customers, usually requiring arbitration before the American Arbitration Association.

Customers should be careful to read the fine print to understand the exact rights they are giving up when they open an account at a brokerage firm or investment advisor.

There are many pros and cons of arbitration. Although opinions on this matter are subject to wide variation, some of the common pros are as follows:

  • Arbitration can be faster (but not always).
  • Arbitration can be less expensive. This means that lawyers who work on a contingency fee can take smaller cases that could not otherwise be brought in court.

Some of the cons are as follows:

  • Cases are not decided by a jury of your peers, but rather a panel of arbitrators.
  • Discovery rights are limited. In FINRA arbitration, for example, there are no depositions allowed. Parties do not typically know what the other side plans to say until the actual arbitration hearing arrives.
  • Appeal rights are very limited.

As a practical matter, investors do not typically have a choice between arbitration and court. If you want to open an account with the brokerage firm, you must agree to arbitration. If you have a potential dispute with a brokerage firm or Registered Investment Advisor, you should consult an attorney who is familiar with these types of disputes and the arbitration process.

Please Note:Rabin Kammerer Johnson provides these FAQ’s for informational purposes only, and you should not interpret this information as legal advice. If you want advice as to how the law might apply to the specific facts and circumstances of your case, please contact one of our attorneys.