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Securities Arbitration
Securities are certificates (or electronic entries) designating ownership of corporate stocks, mutual funds, corporate and government bonds, stock options, and other “negotiable instruments.” In the securities industry, disputes can and do arise between brokers and client-investors. In a recent case, for example, a broker convinced a retiree to invest $25,000 in a shell holding company, and the money disappeared.
Securities disputes are usually decided by arbitration. Arbitration is a private process outside of the legal system. Parties to arbitration agree to have their case heard out of court, in order to get a fast, easy, and legally binding decision. Arbitration is a trimmed-down version of a trial, with no issued opinions, light discovery, a limited right to appeal, and no jury.
When both parties are companies, corporations, and firms, they are contractually bound to arbitration. This obligation arises from their membership in the National Association of Securities Dealers, the New York Stock Exchange, and other exchanges. In addition, companies usually want their affairs kept private in arbitration.
However, when the client is an individual, arbitration can be unbargained-for and unfair. For example, the client may have signed an agreement containing an arbitration clause requiring her to travel from California to New York, and to pay a $1,000 fee, without knowing what arbitration even is.
In the past, courts have found securities arbitration clauses unenforceable, but a Supreme Court decision in the 1980s supports the enforceability of arbitration clauses in all securities contracts. Thus, even individual investors are often forced into arbitration, even though arbitration is perceived as being “pro-business.” However, there are skilled arbitration attorneys specializing in recovering for individual clients who have been victims of securities fraud, coercion, and bad faith.
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