How to Recover Financial Advisor Losses With Mediation

How to Recover Financial Advisor Losses With Mediation

Many investors shrug off losses due to market conditions, when it may be the fault of their financial advisor or stockbroker. A great way to recover losses is through mediation using an investment fraud lawyer. A FINRA mediation allows for a fast settlement of claims recovery of losses for investors.

FINRA Mediation vs. Arbitration

To those of us who have regularly handled securities arbitration matters for many years, there is no mistaking the two alternative forms of dispute resolution as they are nothing alike.

Arbitration is your “final hearing” or akin to the trial. There will be a decision at the end of the case, an Arbitration Award will be entered and it will essentially be a final decision.

Preparing For FINRA Arbitration

Preparing for the arbitration can be stressful for some folks, it is, at best, uncomfortable to say the least to be cross-examined by a lawyer, questioned by arbitrators, and going through the financial equivalent of a proctology exam in front of one or more arbitrators. The preparation, time, and expense of preparing and attending the litigation of securities arbitration claim in a final hearing is not very high on the list of best ways for most investors to spend their time. That said, if left with no better alternative, the system is available, and could be the best available option.

Most cases will travel on a parallel track where the case is prepared for the final hearing, but, at the same time, the parties can agree to engage the services of a mediator. Unlike the arbitration final hearing, a mediation is really nothing much more than a structured settlement conference guided by an experienced mediator. It is typically non-binding on the parties, and the mediator is typically someone experienced enough to help both sides not just facilitates the negotiation itself, but also to evaluate their strengths and weaknesses in the case in a productive manner such that they can effectively handicap the anticipated outcome at a final hearing in the arbitration.

Left on their own, experienced attorneys can always try to negotiate directly, but in cases where one or both attorneys may be stubborn, or their clients are viewing the claim as an “all or nothing” prospective outcome, it helps both sides to have the services of an objective third party to suggest, cajole or otherwise incent them to engage in fruitful settlement negotiations of arbitration claims.

While the mediator’s services do not come cheap, those who are experienced in this specialty area do not need to be updated on the laws, rules, or regulations. While there are thousands of experienced mediators all over the country, there are only a small handful who specialize in securities arbitration matters.

Who Pays For The Mediator?

Typically, the parties must initially agree to share the cost of the mediator, which can sometimes run several thousand dollars. While this may seem like an unnecessary and excessive expense, it is often well worth the fees charged to get the case concluded in a fairly efficient manner with minimal stress and at much lower expense that what is likely associated with the administrative cost of a FINRA arbitration hearing that might take several days.

The other thing to keep in mind is that if the matter is going to be settled, it is possible to negotiate which side pays the mediator fees, or the parties may agree on a split of those fees that is not necessarily a straight 50/50 shared split of the fees.

Where Are FINRA Mediations Located?

Traditionally, the mediations were conducted in a city located near where the Claimant resides and near where the final hearing is scheduled to take place. Typically lawyers, parties with the settlement authority, and possibly expert witnesses would all converge on that geographic location. While there had been some mediations conducted by telephone or by video conference (Zoom), those were often the exception. Now, following everyone’s experiences with Covid-19 travel restrictions, health considerations, etc. a video conference (Zoom) mediation has become quite commonplace.

Notwithstanding the more widespread use of alternative options, most participants in FINRA mediations would agree that in-person mediations are by far the most effective. As participation is completely voluntary, it is entirely possible for any participant to simply disengage at any time. That is often easier to do when little is invested in showing up on a telephone conference call or video conference (Zoom). A party (or an attorney) can simply hang-up or press a button and the process is then over. In-person, it is often more difficult (but certainly not impossible) to get up and walk out the door.

Is FINRA Mediations Public?

The mediation is private and confidential. Offers, admissions, candid discussions of the facts, evidence, damages, etc., are not admissible in any future proceedings, and the mediator will not convey any confidential information from one party to another without the permission of the disclosing party.

Is Mediation A Good Strategy To Recover Investment Losses?

In the past, one side or the other may have been hesitant to suggest mediation for fear or concern that it might evidence a sign of weakness. Nowadays, it appears most attorneys are beyond those superficial notions and view them as “old school.” The case may have limited value to one side or the other, but most cases are worth at least exploring settlement, as continued litigation is almost assuredly going to be expensive and the outcome uncertain.

The early settlement will certainly reduce legal fees/costs for all parties. The mediator can also be an effective unbiased third party that can help clarify for both sides their respective weaknesses or strengths in any case. Having the mediator review these strengths and weaknesses not just of your side, but also the other side helps both sides assess and evaluate the case more clearly. At the very least, sometimes having the opportunity to actually observe the other parties or their attorneys in the mediation is also something that can be factored in as part of the case evaluation.

If the claimant appears elderly and infirm, or the financial advisor is a slick-looking, sleazy salesman (wearing a flashy watch/ expensive suit), this can be helpful information. Then, of course, as discussions take place throughout the mediation, the credibility of the potential witnesses, can all be useful.

The mediator will also share with you his/her impression of the potential witnesses. While you will most likely not be able to directly question the parties as to the disputed portions of the claim, you may ask the mediator to do so. The mediator will then convey to you your adversary’s position as to various issues raised in the arbitration claim and provide you with his/her assessment of the veracity (or not) of the parties. Indeed, in order to give a candid assessment of your own client, the mediator may ask to speak directly with your client (in your presence) to ask questions about the disputed facts. The mediator may also speak to you without the client present so as to convince you that your client may have some problems convincing the arbitration panel of the client’s version of events.

What Are The Downsides of FINRA Mediation?

In short, there is very little downside to participation in a mediation. At the very least, you will get to observe your adversary and have a third party (the mediator) highlight to you the strengths and weakness of the case, some of which you may have previously not considered very significant. If you are a client who adamantly believes your claim should resolve for 100% of your losses, plus your attorneys’ fees, interest, and costs, you will have an opportunity to see the documents and hear the reasons (through a third-party) why that is not necessarily the outcome that most arbitrators might be inclined to consider in an arbitration award after a hearing on the merits.

Mediators often discuss the two types of mediation “styles” – “evaluative” (the mediator evaluates the claims of the individual parties and makes settlement recommendations based on the mediator’s judgment as to who has a stronger case) and “facilitative” (the mediator does not evaluate the strengths and weaknesses of the claims but rather leads the parties to a common ground that will result in a resolution). For the cost of mediation nowadays, it often makes little sense to simply use a facilitative mediator. The insight and evaluation offered is often as valuable as anything.

Preparation For FINRA Mediation

Prepare for the occasional skirmish, not necessarily a battle, and only limited to your attorney for the most part- but you will see some insight into the detail of the arbitration process. Even if you do not see the full mediation summary, exhibits, or hear the arguments, your lawyer will be asked to counter a number of points. While this will likely be done in methodical fashion, offering supporting documents or a proffer of anticipated testimony, you will get a brief example of the types of issues that would come up in a final arbitration hearing.

Prior to the agreed-upon mediation, the mediator will expect to receive written materials from all parties. This can include pleadings, a profit and loss (damages) analysis and possibly some key documents, such as correspondence exchanged with a customer, notes of conversations with a broker, etc. Some attorneys will prepare a separate “mediation statement” outlining the respective strengths and weaknesses of the parties’ claims. In instances in which significant documents, emails, phone records, etc., have been provided in discovery, to the extent such information is not discussed in the pleadings, a separate mediation statement may be in order. While neither the attorneys and nor the mediator take testimony during mediation sessions, the mediator will also frequently ask permission to question the client or expert in the presence of their attorney (adversaries are not present). Although very much informal and informative as opposed to any kind of aggressive cross-examination, it is necessary to be prepared for some questions and to be able to respond truthfully, accurately and concisely as that may be the best opportunity for a client to come across as credible

Lastly, it is advisable to consult with your adversary prior to the mediation on the issue of damages. If the parties go into the mediation without an agreement as to the damage figure, much time and energy can be wasted at the outset agreeing on that number – without such an agreement settlement is highly unlikely, or will just take longer before the parties can get to those discussions. By that “number” I mean the net out of pocket loss, which, in most cases, is a simple mathematical calculation. Claimants can also calculate additional damages, such as “lost opportunity” or “well-managed account” losses to present at the mediation, together with an attorneys’ fees statement.

The mediator often begins the session by describing his background and objectivity and the mediation process, primarily directed at the claimants. He/she will emphasize the uncertainty of arbitration outcomes and the ability to control the outcome of the case via mediation. Some mediators like to hear an opening statement by each side, and other mediators find this exercise wholly unproductive, electing to begin mediating directly following some introductory remarks.

While opening statements may go a long way to make clients feel good about their respective counsel, many have seen the allegations and arguments in this initial stage as counter-productive or at least counterintuitive, as the purpose of the mediation was to bring parties together to amicably settle the claim, yet the mediation begins with attorneys for the parties casting aspersions on each other’s clients. For this reason, it has become more commonplace to forego opening statements and begin separate conferences with the mediator. Beginning the process by instilling some antagonism, or worse yet creating bitter feelings, only adds in most cases to intransigence during the course of the mediation. As the mediator conducts “shuttle diplomacy” throughout the course of the day, you should be prepared to provide factual support for your case. A good mediator will use effective evidence to present your position to your adversary (that is, with your permission). If you have evidence that rebuts the claims of your adversary, have that at the mediation to share and discuss with the mediator.

Mediation Process Requires Patience

The process often requires enormous patience. As much as one or both attorneys (and the mediator) may all wish to “cut to the chase” that is rarely how the process works out. In fact, many clients get very frustrated by the seemingly slow progress early in the day and often find themselves presented with a proposed final settlement figure after a lengthy process. Sometimes that figure is in fact the final offer, and in some cases it is just part of an ongoing process.

In conclusion, there is often tremendous utility in mediation of a FINRA securities arbitration case. The opportunity to get the case resolved amicably is the primary objective, but it is not the only befit from the process. A good mediator will help you assess and evaluate your case, and will help your client view the case from the perspective of an unbiased third party. In addition, the opportunity to interact and observe potential witnesses, and adjust the strategy accordingly can also be quite valuable.

As some very good mediators like to say: A successful mediation is one where all parties leave the mediation unhappy, but the case has been settled. The Respondent will have paid more than they wanted to pay, and, the Claimant will have accepted less than they wanted to accept, but both sides saw the merit in getting the case resolved on terms that were not preferred, but which were “tolerable.” While the final hearing and an Arbitration Award are very different in terms of offering the parties an opportunity for a “win” there is always the unpredictability in the process that could also result in a “loss” no matter how seemingly good the case appeared to be, and the arbitration process also brings with it little predictability with no precedent, no rules of evidence and no formal rules of procedure. In the end, an arbitration result can also be a “split the baby” award that is neither a clear win or a clear loss for either side.

Thus, mediation allows the parties to reach a negotiated outcome that is both predictable, and under their control – and, for some clients, that is much preferred. Other clients will prefer to have the opportunity to go for the outright “win” and the attorneys at Haselkorn & Thibaut, P.A. recognizes the fact that every client is different. We do not take a case if we are not interested in taking it through a final hearing and going for the “win”.

Call Haselkorn & Thibaut, P.A. experienced securities arbitration attorneys for free, friendly advice regarding your investment fraud claims.

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