By Christopher T. Vernon
This article is meant to discourage an investor from attempting to negotiate or mediate a dispute with a FINRA investment firm without help from an experienced FINRA arbitration attorney. It also aims to help an investor if he or she decides to go it alone. As an attorney with more than 20 years experience negotiating with brokerage firms, I have learned that securities arbitration takes a great deal more experience, preparation, strategy and skill than most investors might realize.
Over recent decades, multiple national brokerage firms have sold one or more products on a massive scale by misleading investors and, in some cases, their own financial advisors about the true risks of these products. Now, thousands of investors – some with the help of their local financial advisors – are lodging virtually identical complaints that they were misled about the nature of and risks involved in these products.
The firms guilty of selling these products won’t acknowledge their clear and widespread wrongdoing, but they do recognize the significant costs of defending these claims. These costs include costs to the firm’s already tarnished reputation, costs of paying high-priced lawyers to convince FINRA arbitrators that the investor and market vagaries are to blame rather than the investment firm and the costs of facing regulators when the firm has done little or nothing to resolve widespread investor complaints.
And, although FINRA members commonly get away with more wrongdoing in FINRA arbitrations than they would get away with in an independent arbitration proceeding or in a court proceeding, the firms also recognize the significant costs of paying claims if the firms are repeatedly held liable by the FINRA arbitrators following a final arbitration hearing.
To minimize these costs, some of the biggest brokerage firms develop systematic damage control strategies to cheaply and quietly resolve disputes with investors that involve specific products. Some firms have created in-house teams that, on the surface, appear to conduct internal and objective investigations on behalf of complaining investors. In reality, these investigations are designed to gather evidence to support the brokerage firm when it offers a pittance to resolve a claim or asserts that the investor should get no compensation at all — even though the parent firm committed malfeasance in connection with the product at issue. Alternatively, some firms agree to conduct a formal mediation with an investor before he or she hires an attorney and before he or she files a formal FINRA arbitration claim. In these situations, the brokerage firm often arrives at the mediation with highly paid, outside counsel armed with a high-tech, well-researched presentation to convince the investor that the brokerage firm did nothing wrong. These sham attempts at compromise usually aim to convince the investor that this was a miscommunication at the branch level of the firm and not a corporate driven effort to deceptively sell a profitable product on a national or even international scale.
If you purchased a product that was falsely represented to both you and many other investors, you should talk to a competent FINRA arbitration lawyer before approaching the brokerage firm that wronged you. This may sound self-serving, but we believe it is in the investor’s best interests. Keep in mind that the brokerage firm designed these early resolution processes to benefit it, not you.
The following points should discourage you from negotiating or mediating with a brokerage firm without an experienced attorney, but if you decide to go it alone, they will help you avoid some basic mistakes:
1. If you speak directly to a brokerage firm in connection with a formal or informal negotiation process, you can pretty much bet that everything you say will later be used to help the brokerage defeat your claim. Under the guise of wanting to fully understand your claim, brokerage firms will ask for a tremendous amount of information about you and your claim in order to get a "free look" at your case. The firm then uses the information to aid its own defense as well as convince you of the weaknesses of your claim. This often allows the firm to effectively get around pleading and discovery limitations in arbitration that can prevent brokerage firms from effectively interviewing or deposing you in advance of a FINRA arbitration hearing.
2. Each case is different, making it difficult to give concrete advice, but we believe it is helpful to thoroughly and realistically analyze what the likely result might be in FINRA arbitration and then calibrate any direct negotiations based on that analysis. This helps you negotiate in a pro-active rather than reactive manner. Many of our clients are experienced negotiators in their own fields, but learn that negotiating with a brokerage firm can be very different.In some cases, early negotiation or mediation of product cases may be the best approach. Firms recognize they have some exposure and that early negotiation or mediation gives both sides a chance to resolve the matter before the sides become too entrenched in their positions, expenses on experts, hardening of attitudes due to passage of time, etc. It also allows claimants an opportunity to resolve the matter quickly and move on with their lives. Unfortunately, without experienced counsel, you may find that early mediation or negotiating is an opportunity that the brokerage firm will use to gather evidence as well as wear you down and convince you to accept less than you should to resolve your claim.
At our firm, we analyze each client’s case when determining whether it is appropriate to mediate or negotiate prior to filing a formal FINRA arbitration claim. In addition to the time spent on negotiation or mediation, we also invest time in: Considering the ancillary benefits and detriments to early negotiation or mediation; selecting a mediator who will be a good fit for the client and the case; deciding what evidence we want to present and what strategies we want to employ at the mediation or during negotiations. These efforts help maximize the settlement for our client or best position him or her to settle later or be successful at the final FINRA arbitration. Unfortunately, these are case specific details that are difficult to convey through a general informational article such as this one.
We hope this article has convinced you not to try to negotiate or mediate a dispute with a FINRA member brokerage firm until you have retained an attorney or at least spoken with one who is well versed in FINRA arbitration. However, if you decide to proceed with negotiations or mediation without counsel, we hope this article will improve your chances for a successful negotiation of your claim.
Considering the ancillary benefits and detriments to early negotiation or mediation; selecting a mediator who will be a good fit for the client and the case; deciding what evidence we want to present nd what strategies we want to employ at the mediation or during negotiations. These efforts help maximize the settlement for our client or best position him or her to settle later or be successful at the final FINRA arbitration.
Unfortunately, these are case specific details that are difficult to convey through a general informational article such as this one. We hope this article has convinced you not to try to negotiate or mediate a dispute with a FINRA member brokerage firm until you have retained an attorney or at least spoken with one who is well versed in FINRA arbitration. However, if you decide to proceed with negotiations or mediation without counsel, we hope this article will improve your chances for a successful negotiation of your claim.
