Arbitration and Mediation are important tools in resolving disputes related to stockbroker fraud, investment fraud, and securities violations. Federal and state laws prohibit such activities, and investors have the right to file private lawsuits for such violations. Although most securities-related claims have federal implications, investors must bring their lawsuits, along with any supplemental claims arising under state or common law, in the Federal Court of the Division of Securities. This is because federal courts have jurisdiction over such claims.

Most brokerage firms require their customers to agree to submit all disputes arising from their securities account to binding securities arbitration through a Self-Regulatory Organization (SRO), such as NASD Regulation, Inc., the New York Stock Exchange, or the American Stock Exchange. Customers typically agree to arbitrate all disputes arising from their stock brokerage account in new account agreements, margin agreements, option agreements, and on the back of monthly customer account statements. This agreement to arbitrate is a customary practice in the stock brokerage industry.

Securities arbitration is a fast, fair, and cost-effective way to resolve conflicts. Since the Supreme Court’s ruling in Shearson/American Express, Inc. v. McMahon, courts have upheld agreements to arbitrate disputes between public customers and stockbrokers and their firms in securities cases. Securities arbitration typically avoids the costly discovery and deposition processes. The arbitration panels are well-versed in securities-related matters, including claims against stockbrokers and investment professionals for fraud.

Mediation, on the other hand, is a voluntary and informal process where an impartial mediator helps parties reach a mutually acceptable resolution. Unlike arbitration and litigation, mediation does not involve an imposed solution, and the mediator assists parties in creating their own resolution. Mediation is a non-binding process that prioritizes finding a mutually satisfactory solution for all parties involved. If the parties are unable to reach an acceptable settlement, they can still benefit from the mediation process by narrowing down the issues that will be resolved through arbitration or litigation.

In mediation, the parties are guided and assisted in reaching their own solution by defining important issues and understanding each other’s interests. The mediator focuses on crucial factors necessary for settlement and the consequences of not settling. The mediator does not decide the outcome of the case or compel parties to settle. Mediation is a non-binding process that emphasizes creating a mutually acceptable solution. Even if a settlement is not reached, the parties may still benefit from the process by narrowing the issues to be arbitrated or litigated. The mediator can defuse hostile attitudes and remedy miscommunication.

Overall, both arbitration and mediation offer their unique benefits, and parties can choose the process that best suits their needs.