Arbitration for Aggrieved Investors Is Fast -- But Is It Fair?

Arbitration Is on the Rise in America

Binding arbitration clauses have become a pervasive part of our national justice system. They control insurance contracts, entertainment contracts, and contracts investors make with broker-dealers. The reasons for the rise of binding arbitration clauses are manifold. The big question is, are they fair to most Americans?

Let’s look at the securities industry, since that is one of our primary practice areas, and we come against binding arbitration clauses on a regular basis. In fact, you’d be hard pressed to find a reputable, registered broker-dealer that did not ask investors to sign away their rights to sue in a court of law and seek justice in front of a jury of their peers in order to direct those disputes into arbitration.

Arbitration Clauses Bind Investors Seeking Redress

The arbitration clause can be found in virtually all the account opening documents used by registered broker-dealers. Maybe your financial advisor or stock broker pointed it out to you — maybe not. Chances are extremely good, however, that you signed this clause and are now bound to resolve any disputes through arbitration.

Is that fair? Well, in the sense that you as an investor have a duty to read the account opening documents, yes it is. In the sense that this clause, which could have far reaching implications should you enter into a dispute with your broker, is something that you don’t really understand and may not have known was there, not so much.

We Didn’t Learn About Arbitration in Civics Class

While most if not all of us have been taught in school that we can seek justice in a court of law and, typically, in front of a jury of our peers or a judge who is supposed to be impartial, none of us have been taught that, in actuality, many industries have shut down this avenue of justice in favor of arbitration proceedings. Is that fair?

Even more unsettling, instead of the government and more specifically the Department of Justice, arbitration forums are sponsored, administered, and run by the industries themselves. They are a form of self-regulation and self-policing. Whether they want to hear it or not, this makes the arbitration forum biased toward the industry that supports it. How could it not be?

Time Is Money, and Arbitration Is Fast

While much of the above seems unfair, if not un-American, there’s one good thing about arbitration that sets it above the traditional route of justice: it’s efficient. Far more efficient, in fact, than the civil justice system. While court cases can drag on for years, at least in the securities industry, arbitrations — if they go all the way to a hearing — usually take about a year and a half to resolve.

So while the tradeoff may seem to injure our notions of what justice is and how it works, there’s no arguing against the fact that arbitration is more efficient and, thus, potentially more fair. At any rate, it’s not going away.

Pennsylvania & New Jersey Securities Lawyers

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If you or someone you know has been the victim of broker misconduct or investment fraud, please contact our securities attorneys immediately for a free consultation toll-free at 215 462 3330 or by using our online contact form.

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