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The FINRA Arbitration Proceessby Andrew Whiteman

The FINRA Arbitration Process

Almost all disputes involving securities brokers and their customers are resolved by arbitration under a process administered by the Financial Industry Regulatory Authority (“FINRA”).  FINRA was created on July 30, 2007, through the merger of the National Association of Securities Dealers, Inc. and the New York Stock Exchange. FINRA is the largest non-governmental regulator of securities firms doing business in the United States. It oversees nearly 5,100 brokerage firms and more than 676,000 registered securities representatives. FINRA operates under a charter granted by the Securities and Exchange Commission to regulate the activities of its broker-dealer members and the members’ registered representatives.

When a customer opens a brokerage account with a broker-dealer, the customer is usually required to sign new account papers that call for arbitration under the rules of FINRA Dispute Resolution, an arm of FINRA. FINRA Dispute Resolution operates an arbitration program for the resolution of disputes related to the activities of its members. As a result, virtually all disputes between customers and brokerage firms will be decided by a panel of arbitrators appointed by FINRA Dispute Resolution.

FINRA arbitration may be likened to a private court system. The case is initiated by the customer’s attorney filing a complaint on behalf of the customer. Sixty days after the complaint is served, the respondents will be required to serve an answer. After the answer is filed, FINRA distributes lists of potential arbitrators. The parties are asked to reject arbitrators they do not want and rank those remaining. FINRA then selects three arbitrators from the lists returned by the parties. Typically, one of the three arbitrators will have a background in the securities business. The other two arbitrators are typically professionals (often attorneys) or businesspersons.

After arbitrators are selected, the panel will confer with the attorneys via telephone for the purpose of ironing out any discovery disputes and establishing a hearing schedule.  The customer can expect that the hearing will take place approximately six to nine months after the telephone conference.

After the initial pre-hearing conference, the parties engage in a process called “discovery” by which information and documents are exchanged. Discovery in FINRA cases is much more limited than what is allowed in court litigation. Extensive interrogatories and depositions are generally not allowed.

The customer has the right under FINRA arbitration rules to have the hearing take place where the customer resided at the time the transactions in question took place. The hearing of the dispute is typically held in an informal setting such as a hotel conference room. Each side presents evidence by witnesses and documents, with the claimant having the right to go first. Hearings typically continue for three to four days. The parties are generally notified of the decision within 15 to 30 days after the hearing concludes.

The customer, in addition to paying legal fees, is responsible for expenses charged by FINRA for administering the case. FINRA charges a filing fee of up to $2,250 depending on the amount that is being claimed. Up to $1,500 of the filing fee will be refunded if the case is settled before ten days prior to the first scheduled arbitration hearing date. FINRA also assesses hearing session fees for each half-day hearing session. Like the filing fee, the hearing session fee is assessed on a sliding scale based on the amount in dispute. The maximum half-day hearing session fee is $1,500. The arbitrators have the discretion to allocate the hearing session fees between the parties. Oftentimes, the arbitrators split the hearing session fees equally between the parties.

After the close of the hearing, the arbitration panel deliberates and decides whether the claimant is entitled to relief. Majority rules, a unanimous decision is not required.

FINRA does not have an appeals process by which a party may challenge the arbitrators’ decision. A party may challenge the arbitration award in court, but the grounds on which a court may overturn an arbitration award are quite limited. Under federal and state laws, a court may vacate an arbitration award if (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption by the arbitrators; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, or in refusing to hear relevant evidence, or of any other misbehavior by which the rights of any party was prejudiced; (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award on the subject matter submitted was not made; (5) the arbitrators disregarded a clearly defined law or legal principle that they were aware applied to the matter before them; or (5) there is no factual or reasonable basis for the award. Most arbitration awards are upheld by the courts.

Absent a challenge to the award, an industry party must pay arbitration awards within 30 days or risk suspension of his or its FINRA licenses.

While securities arbitration is a more streamlined process than litigation in court, the rules at play are complex. Investors need representation by attorneys who are experienced in FINRA rules and arbitration practice.

© Andrew Whiteman 2019

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Whiteman Law Firm has handled hundreds of securities matters over the past 40 years. Click here for more information about our securities litigation and arbitration practice. Please contact us for more information.

Equal Pay for the U.S. Women’s Soccer Team!by Andrew Whiteman

Equal Pay for the U.S. Women’s Soccer Team!

If you want to know what the U.S. women’s national soccer team is complaining about, click here to see the team’s federal court complaint against United States Soccer Fedaration, Inc. This story in The Atlantic summarizes the case. Hint – the women have really strong claims under both the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964.

The Equal Pay Act (“EPA”) amends the Fair Labor Standards Act of 1938. The EPA prohibits pay discrimination based on sex. Like other federal anti-discrimination laws, the EPA grants enforcement authority to the Equal Employment Opportunity Commission (“EEOC”). However, unlike other federal discrimination laws, such as Title VII of the Civil Rights Act or the Americans with Disabilities Act, a claimant has a right to bring a lawsuit under the EPA without first submitting a charge of discrimination to the EEOC.

Section 206(d) of the EPA, 29 U.S.C. § 206(d), requires that employers may not discriminate between employees on the basis of sex by paying wages to employees of the opposite sex “for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.” The law provides exceptions if unequal wage payments are made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by the quantity or quality of production; or (iv) a differential based on any other factor other than sex. Id.

The law covers all types of compensation including regular pay, overtime, bonuses, vacation and holiday pay, and employee benefits.

Equal pay for equal work does not mean that the jobs must be identical. If two employees are performing the same work, it does not matter that their job titles or job descriptions are different. Jobs are considered “equal” under the EPA even if there are small differences in skill, effort, responsibility, or working conditions. Two jobs may be considered “equal” even if one job includes a few additional duties, particularly if the higher-paying jobs with the extra duties are reserved for workers of one gender.

Whether two jobs are considered “equal” requires an analysis of the skills required to perform the job, not the skills that the individual employees possess. Differences in the education, training, and experience of employees may not be relevant if the jobs at issue require the same skills and if both employees possess those skills. The physical and mental effort required by a job and any hazards associated with the work are relevant factors, and it is not illegal to pay employees more for performing harder or more dangerous work. Another factor that may justify a pay differential is whether a job carries managerial or reporting responsibilities.

Title VII of the Civil Rights Act of 1964 is broader than the EPA. The EPA only prohibits discrimination in wages based on sex, whereas Title VII bars all forms of discrimination based on sex, race, religion, etc., including discrimination in pay, hiring, firing, and promotion. There are other differences in coverage between the EPA and Title VII. Title VII does not require the jobs in question by equal, unlike the EPA. Title VII does not apply to employers who have less than 15 employees, while virtually all employers and jobs are covered under the EPA regardless of the number of employees. The EPA does not require proof that the employer acted intentionally, unlike Title VII. Title VII requires that before a claimant may sue the employee must first file a charge of discrimination with the EEOC. An employee may not sue the employer under Title VII unless the EEOC has declined to institute an enforcement action and has issued a “right to sue letter” to the claimant.

The time limit for filing an EPA lawsuit is two years from the last alleged unlawful compensation practice (usually, the last discriminatory paycheck) or three years if the violation was willful. Under Title VII, a claimant must file a charge of discrimination with the EEOC within 180 days from the day the discrimination occurred. The 180-day filing deadline is extended to 300 days if a state or local agency enforces a law that prohibits employment discrimination on the same basis as the EEOC.

The EPA and Title VII provide different categories of damages that may be recovered. The EPA provides for unpaid wages, “liquidated damages,” and attorney’s fees. Liquidated damages is an amount equal to the claimant’s unpaid wages. Thus, the liquidated damages provision of the EPA effectively doubles the claimant’s recovery. Title VII does not provide for liquidated damages, but it provides for compensatory damages, which includes financial damages and emotional distress damages, and punitive damages. In Title VII cases, damages are “mitigated,” i.e. reduced, by any income earned by the employee after an unlawful termination, and any damages that are awarded other than for back pay are capped at varying levels, from $50,000 to $300,000, depending on the number of persons employed by the employer.

Despite the passage of the EPA in 1963, women in the United States still make only 80.5% of the compensation paid to their male peers in the workplace. The Institute For Women’s Policy Research website contains a great article about the gender pay gap titled Pay Equity & Discrimination.

Congratulations to the U.S. women’s soccer team’s great World Cup victory. Let’s hope they are equally successful in pursuing their claim for pay parity.

© Andrew Whiteman 2019

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Whiteman Law Firm handles cases involving claims for pay discrimination under federal and state law.

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Get Private Health Insurance Out of Medicareby Andrew Whiteman

Get Private Health Insurance Out of Medicare.

Professors Pamela Herd and Donald P. Moynihan of Georgetown University’s McCourt School of Public Policy have written in a New York Times op-ed that the involvement of private health insurers in providing Medicare benefits has greatly increased the complexity of the program and, as a result, the burden on consumers. Herd and Moynihan wrote:

Private insurers make Medicare extraordinarily confusing, increasing costs for beneficiaries and their own profits. When enrolling in Medicare, and then every subsequent year, beneficiaries are required to make a series of decisions regarding their coverage. Though there is a base benefit package, there are also many and varied options, ranging from which prescription drugs are covered to the amount of premiums, co-payments and deductibles. The plans also change every year.

Making the right choice means finding a match between your fluctuating health needs and the changing plans. It is as complicated as it sounds. Getting the best coverage for the lowest cost often requires switching plans nearly every year but very few people do this, leaving them with higher costs and less effective coverage. A study from the University of Pittsburgh, for instance, found that only 5 percent of Medicare beneficiaries in 2009 chose the cheapest plan that will cover their prescription drug needs.

Professors Herd and Moynihan’s main point is that a discussion of the administrative burden of our current health care system should be part of the public debate.

Click here for the Herd/Moynihan New York Times op-ed.

© Andrew Whiteman 2019

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Whiteman Law Firm specializes in cases involving claims for insurance coverage and employee benefits.

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