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The Arbitration Process

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Generally, arbitration as a method for dispute resolution is more casual, more cost-effective, and faster than going to court. The majority of securities fraud cases are resolved through arbitration. Investors may present their claims in arbitration without the assistance of a securities attorney; however, many investors find that using a securities lawyer gives them a distinct advantage in the arbitration process.

Free Consultation, No Recovery No FeeArbitration begins when the investor files a Statement of Claim and Demand for Arbitration. The Statement of Claim does not require any specific legal form, although legal arguments and supporting documents are generally included. At this point the investor also submits a signed Submission Agreement, in which the investor agrees to submit the dispute to arbitration and to be bound by the results. The investor must also include payment for the filing fee and initial hearing deposit, which is based on a sliding scale depending on the amount of the claim.

According to NYSE and NASD rules, the broker or firm will have twenty business days to respond with an Answer to the Statement of Claim, including all defenses and counterclaims. Then both the investor and the broker present requests for production of documents and information, which must be responded to by the opposing party.

Three arbitrators will be appointed to the hearing for the arbitration, including one securities industry member and two public arbitrators. The broker and the investor both have the right to object to named arbitrators if they have a reason to believe that the arbitrator may be prejudiced against them. The hearing will generally be held six months to a year after filing.

The arbitration hearing is similar to a trial, although it is less formal. Both sides give opening statements, present their side of the case, including evidence and witnesses, and may cross-examine witnesses for the opposing party. One major difference between arbitration and a trial is that in arbitration the arbitrators themselves are permitted to ask questions of the witnesses and parties. The hearing is concluded with closing arguments, and will typically last between one and two days, unless the case is extremely complex.

The arbitrators have thirty days in which to render their decision. The decision must be presented in writing, and then is prepared by the arbitration forum administrative staff and distributed to panel members for their review and signatures. Then the decision is sent to both parties and the award must be paid within thirty days. The arbitrators' decision has the same binding effect as a court order.

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