Securities are certificates (or electronic entries) designating ownership of:

  • Corporate stocks
  • Mutual funds
  • Corporate and government bonds
  • Stock options
  • Other “negotiable instruments”

In the securities industry, disputes can and do arise between brokers and client-investors. For example, in a recent case, a broker convinced a retiree to invest $25,000 in a shell holding company; the money disappeared, and a dispute arose.

What Happens When Securities Are Disputed?

Securities disputes are usually decided by arbitration, which 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.  Essentially, arbitration is a trimmed-down version of a trial, with no issued opinion, minimal discovery, a limited right to appeal, and no jury.

  1. Disputes Between Legal Entities – If 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.
  2. Disputes Involving an Individual – If the client is an individual, mandatory arbitration can be 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 even knowing what arbitration is.

Are Securities Arbitration Clauses Enforceable?

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.

Should I Seek Legal Advice?

Securities are an extremely complicated area of the law. If you are involved in a dispute over securities, you should seek the advice of a lawyer immediately. A skilled securities lawyer can ensure your rights are zealously represented.