Investment Fraud: Should You Mediate Before You Arbitrate?

When seeking to recover fraudulent investment losses from a broker or brokerage firm, the primary method for doing so is filing an arbitration claim with the Financial Industry Regulatory Authority (FINRA). However, there is also another option which, under the right circumstances, can help further streamline the process of recovering an investor’s fraudulent brokerage account losses.

This is the process known as “mediation.” While arbitration is generally as a less costly, less time-consuming alternative to litigation, mediation bears a similar relationship to arbitration. However, unlike arbitration, mediation is not mandatory for registered brokers and brokerage firms, and there are situations in which it may still be in an investor’s best interests to pursue arbitration despite the availability of mediation.

Securities Mediation: The Benefits

So, should you seek to mediate? First, let’s talk about the benefits. As an alternative to securities arbitration, some of the benefits of mediating an investment fraud dispute through FINRA include:

• Flexibility – Arbitration follows a structured process which involves scheduled hearings, limited discovery, and presentation of witnesses and documentary evidence to a panel of arbitrators. By comparison, mediation is typically much less structured, with the parties and mediator working together to achieve a mutually-agreeable resolution.

• Control – In securities arbitration, the arbitrators make a binding decision based upon the evidence presented. In mediation, however, it is up to the parties to negotiate a settlement. While this requires reaching an agreement with the broker or brokerage firm, a negotiated settlement can often serve to adequately compensate the investor while avoiding the uncertainty of relying on a third-party decision maker.

• Options – For investors who pursue mediation, the option to arbitrate always remains in sight. Attempting to mediate can give individual investors the chance to negotiate a favorable settlement while still having the option to fall back on the arbitration process if and when necessary.

Securities Mediation: The Limitations

Despite these benefits, mediation is not for everyone. Here are some reasons why investors may want (or need) to proceed with arbitration without first attempting to negotiate a settlement through mediation:

• Lack of Commitment – While arbitration is mandatory for registered brokers and brokerage firms, mediation is voluntary. Even if a broker or brokerage firm agrees to try mediation, this does not mean that the broker or firm will engage in the process in good faith.

• Lack of Structure – In some circumstances, the flexibility inherent in mediation can work to the detriment of the aggrieved investor. Brokers and brokerage firms that agree to mediate may cause delays and disruptions by cancelling mediation sessions, and negotiations can suddenly and unexpectedly breakdown with little recourse but to pursue arbitration.

• Limited Remedies – While brokers and brokerage firms can face FINRA sanctions for failing to engage in the arbitration process or pay an arbitration award, these remedies are not available in mediation. If a broker or firm fails to comply with the terms of a settlement agreement reached through mediation, the investor will typically need file a claim for arbitration or seek to have the agreement enforced in court.

Contact the Securities Fraud Lawyers at Zamansky LLC

Deciding whether to pursue mediation or arbitration when faced with fraudulent brokerage account losses requires the help of an experienced lawyer. At Zamansky LLC, we have decades of experience representing aggrieved investors, and we handle FINRA mediation and arbitration claims nationwide. To learn more about your options in a free and confidential consultation, call us at (212) 742-1414 or contact us online today.