Investor claims against brokerage firms or their salespersons are seldom heard in court. In almost all cases the brokerage firm agreement that the customer signs when the account is opened contains an agreement to arbitrate. These agreements are enforceable and a court will not hear the case. If no such agreement exists the brokerage firm can still be forced to arbitrate because the rules of its regulator, the National Association of Securities Dealers (NASD), requires it. A customer who does not sign such an agreement cannot be forced to arbitrate.

Arbitration proceedings are usually heard by 3 arbitrators, except in smaller cases. They are usually filed with the NASD. However, some are filed with the American Arbitration Association or the exchanges where the securities involved are listed.

Arbitration proceedings are designed to be less formal than court cases with fewer motions and less time spent in discovery. The procedural rules and evidence rules applicable to court cases do not necessarily apply. However, the arbitrators are supposed to follow the rules of substantive law.

No appeals are allowed, except in extrordinary cases. An extraordinary case would be one where the panel lacked authority to decide the case or if it can be proved that the panel was biased. The fact that the panel may have been wrong is not grounds for an appeal.

Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
Ph: 312-782-0844 * Fax: 312-201-1436 * Email: donthompsonlaw@sbcglobal.net