FINRA Eligibility and Statutes of Limitations

FINRA, the Financial Industry Regulatory Authority, is responsible for regulating the activities of brokerage firms and stockbrokers. FINRA also provides a dispute resolution forum – arbitration – for investors to resolve disputes with their brokers. All investors are required to arbitrate in FINRA arbitration who are “eligible”. Some claims in arbitration can be excluded by “statutes of limitations” if investors wait to long to bring their claims.

What is required for FINRA eligibility?

• Written Agreement. Most all brokerage firms include an “arbitration clause” buried in their contracts. If an investor has such a clause in her contract, she will be required to arbitrate.
• Customer Request. If there is no written agreement, an investor can demand arbitration if he is a customer of the broker and the dispute arises in connection with brokerage activity or investment advice (excluding certain insurance products). If the customer demands arbitration in this circumstance the broker is required to arbitrate.
• Eligibility Period. Notwithstanding the existence of a contract or a customer demand, an investor has to bring her claims within 6 years of the misconduct or risk not being permitted to arbitrate. However, sometimes the 6-year-period can be extended if there is concealment of the misconduct preventing the investor from discovering it until recently or the misconduct is ongoing and only stopped more recently.

What are statutes of limitations?

Statutes of limitations are laws or rules that bar old claims in court or arbitration. If an investor waits too long to bring claims against his broker, he may be barred from recovery.

There are three types of claims that can be brought in FINRA arbitration – FINRA claims, state claims, and federal claims. FINRA claims such as unsuitability, churning, and unauthorized trading are claims that must be brought within 6 years subject to circumstances mentioned above that may extend that time period.

State and federal claims, include claims such as state or federal securities violations, breach of contract, negligence, fraud, and breach of fiduciary duty. The time limit for these claims can be as short as 2 years and as long as 5 years. Some, but not all, of the claims may be extended based on a broker’s concealment or ongoing misconduct. It is important to note that statutes of limitations can differ by state. Therefore, it’s advisable to consult with a qualified attorney with experience in securities law or FINRA arbitration for guidance on the applicable statute of limitations for your particular case.

It is important to consult an attorney right away if you believe your broker has committed misconduct that caused you losses. Even if your claims are older than 6 years, an attorney can determine whether any claims are still available based on your broker’s concealment or ongoing misconduct. In all events, it is important to not delay, or you could be barred from ever recovering your losses.