Resolving Investment Disputes by Arbitration
By Aaron Larson
Law Offices of Aaron Larson
July, 2004
Contents
- Your Investment Contract and Binding Arbitration
- Litigation versus Arbitration
- Obtaining Legal Counsel
- The Rules of Arbitration
Arbitration is a form of "alternative dispute resolution", meaning that the dispute is resolved outside of the court system. Typically, an arbitration will be decided by an individual (or a panel of individuals) who is both knowledgeable about the subject being arbitrated, and is impartial. It is usually very difficult to appeal the decision of an arbitrator, so the results of the arbitration are usually final. If it works as intended, arbitration will be faster and cheaper than litigation.
Your Investment Contract and Binding Arbitration
When you sign up with an investment broker or dealer, you will almost invariably be asked to sign a contract which includes a "binding arbitration clause". That is, except as limited by law, you will agree by contract to resolve any disputes between yourself and the broker or dealer through binding arbitration. If you sign an investment contract containing such a clause, except in extraordinary circumstances you will be giving up your right to pursue a remedy through the courts.
Litigation versus Arbitration
While there were initial concerns about the burdens on investors and the cost and objectivity of the arbitration process, many lawyers who represent investors in investment disputes concede that the arbitration process can be superior to litigation in terms of cost and expediency. As arbitrators are experienced in the field of securities trading, it is not necessary to educate them as to the basics of trading, or to simplify arguments in the manner that might be necessary in presenting a case to a jury. Also, it may be easier to collect an arbitration award than it is to collect a judgment issued by a court.
These benefits must be weighed against the benefits of the traditional system, such as the right to engage in extensive discovery of information from the other side, the right to a jury trial, and the right to appeal an adverse judgment.
Obtaining Legal Counsel
Due to the complexity of investment disputes and of securities law and regulation, and the potential need for expert opinion in establishing a claim against a securities dealer, individual investors will ordinarily benefit from consulting with a lawyer before initiating an arbitration proceeding, and from obtaining the assistance of a lawyer in preparing and presenting his case at an arbitration.
The Rules of Arbitration
Arbitration between investors and securities brokers and dealers usually takes place under rules and procedures promulgated by the National Association of Securites Dealers, the New York Stock Exchange , or the American Arbitration Association, or a similar organization. Details on those rules and procedures can be found on the websites of those organizations.
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