If you decide to go forward with a FINRA (formerly known as NASD) arbitration, the costs and expenses fall into four categories -- attorneys' fees, forum fees, other cash expenses, and possible liability for cross-claims. Most investors who represent themselves or who engage a lawyer for a contingent fee should be able to have their claims arbitrated for a cash outlay of between $750 and $5,000, plus a contingent fee if they win or settle, unless they elect to hire an expert witness.

1. Attorneys' Fees. Many lawyers will give you a free initial consultation. If you decide to hire a lawyer to pursue your claim, you can usually elect to pay the lawyer by the hour, if you wish to and can afford it. Hourly rates for securities lawyers typically range from $150 to $400 per hour. How much you pay in hourly fees can vary widely depending on, among other things, how complicated your matter is, whether it is settled or tried to the arbitrators, and the extent of any prehearing disputes and procedures.

Depending on the size and difficulty of your case, some lawyers, including the one who sponsors this site, may offer you the alternative of a contingent fee, which usually means that you do not pay any attorney's fees, and are only responsible to pay the cash expenses, unless there is a recovery. If there is a recovery, the lawyer working for a contingent fee will receive a portion, typically between 30% and 40%, of either the net or gross recovery, depending on the agreement.

2. Forum Fees. When you submit your claim to FINRA (formerly called NASD) arbitration, FINRA charges fees for providing the arbitration service. Its current fee schedule, which is amended from time to time, is in Section 10332 of the NASD Manual. The initial amount you have to deposit with FINRA to file your claim depends on the amount of your claim.  When the stockbrokers file their responses, they also have to deposit fees. FINRA may require the parties to make additional session deposits if it believes that the case will take more than one day of the arbitrators' time to resolve. Additional fees are assessed for additional hearing sessions in accordance with the rules in Section 10332 of the NASD Manual. At the end of the case, the arbitrators have the power to redistribute the forum fees any way they want. Sometimes, especially if the customer wins, the arbitrators require the broker pay all the forum fees, and reimburse the customer for the fees that he has advanced., Sometimes the arbitrators require each party to bear his own forum fees.  Sometimes, the arbitrators require a losing customer to reimburse the forum fees of the brokers, in addition paying his own.

3. Other Cash Expenses. The biggest item in this category is usually the fees of an expert witness, if you decide to use one. Expert witnesses are persons with specialized knowledge and experience who are permitted to testify at the hearing about issues like whether the behavior of the stockbroker was improper and the amount of damages. However, expert witnesses get paid by the hour and do not work for a contingent fee. Therefore, you should make the decision whether to hire one with the advice of your lawyer based on the kind of case you have, how much money is at stake, and your financial resources. If you decide to use a paid expert, the total cost of their services is often in the range of $5,000 to $15,000, depending on how complicated the case is, how much testimony is required, and what you ask them to do.

In addition to expert witness fees there are sometimes other cash expenses for things like large photocopying jobs, travel, and so on. 

4. Possible Liability for Cross-Claims. While it is relatively rare, sometimes a stockbroker will have a claim against you that he will assert in the arbitration in the form of a cross-claim. The most common situation is where a margin account declines precipitously, leaving a negative balance. I have also read a report of one award where a panel ordered the customer to pay the broker's attorneys fees. Such an award is more likely if you have signed an agreement that allows the award of attorneys' fees to the prevailing party.

DISCLAIMER: Vincent DiCarlo, who authored and maintained this site, has entered government service and, as of September 1, 2008, is no longer engaged in the private practice of law.  Therefore, this site is no longer being maintained,  may not be accurate, and should not be relied upon.  It is not now and was not ever intended as legal advice.  It is being provided for historical purposes, and for the benefit of those lawyers who are capable of independently verifying the information and judging the opinions in it, and then reaching their own conclusions.  You are strongly advised to consult qualified legal counsel before adopting any of the ideas or suggestions in this material, which may or may not be applicable in your jurisdiction or to your specific situation, and may no longer be accurate or prudent in any case.  The opinions and statements at this site were solely those of the author.  They were not and are not those of, nor were they nor are they made on behalf of, any agency of government or anyone else.

Copyright © 1998-2008 Vincent DiCarlo