The Statute of Limitations for FINRA Arbitration

A statute of limitation is a legal rule that controls the deadline by which a legal claim must be filed. If the statute of limitations clock runs out on your case, then you will lose your right to take action at all. As a plaintiff, this is a worst case scenario. No one wants to lose out on compensation due to a legal technicality.

Statutes of limitations apply to many different areas of criminal and civil law, including some FINRA arbitrations. This, among other reasons, makes it imperative that wronged investors get their case into the hands of a qualified securities fraud lawyer as soon as possible. Time limits and deadlines in investment fraud cases are notoriously complex. Our team can help protect your rights.

Investment Fraud: There are Two Separate Time Issues


FINRA Statute of Limitations

Most fraud/negligence claims and brokers and brokerage firms are subject to a binding arbitration clause. This means that customers are legally compelled to arbitrate the dispute, as opposed to seeking other legal remedies.

If a customer believes that they have been a victim of securities fraud or any other type of broker misconduct, they have a limited amount of time to seek arbitration. Though, determining exactly how much time can be extremely complicated and highly confusing.

One of the main reasons for this is that there are two separate timing issues that must be addressed:

  1. FINRA Arbitration Eligibility and;
  2. any relevant statutes of limitations.

FINRA Arbitration Eligibility

The eligibility rule is a requirement that is controlled by the arbitration forum in question.

For FINRA arbitrations, time-related eligibility is determined by Rule 12206. Under this rule, investors have six (6) years from the date of the event ‘which gave rise to the claim occurred’ to initiate arbitration.

Six years seems clear enough, right? However, the reality is far more complicated because this rule does not, by itself, extend any applicable statute of limitations that might apply to the claim.

Statute of Limitations

The statute of limitations for a securities fraud or broker negligence claim is separate and distinct from FINRA’s procedural eligibility rules. Most securities fraud claims are brought under Section 10(b) of the Securities Exchange Act of 1934 or SEC Rule 10b-5.

In some cases, they may also be brought under other federal or state laws. However, under those two primary regulations, the applicable statute of limitations is:

It is not always easy to determine when exactly those statute of limitations clocks start running. This is especially true in cases involving multiple related transactions. Ultimately, a case-by-case determination will need to be made.

Understanding How These Time Limits Interact

After learning about the existence of the FINRA arbitration eligibility rule and the state and federal statute of limitations, there is one obvious question that often gets raised by investors:

The deadline to arbitrate is far longer than the statute of limitations, so what does that actually mean?

There is no simple answer to this question. That reality is very complicated. First, it does mean that wronged investors technically have six years to seek a FINRA arbitration. FINRA rules will not stop you from bringing a claim before that clock runs out. However, it also means that investor rights might be restricted by state or federal law.

Ultimately, this depends largely on the jurisdiction in question. Though to be clear, FINRA’s general eligibility rules may be superseded by state law. Indeed, in the majority of jurisdictions that is how the process currently works. Consider the following example:

FINRA Arbitration and the Statute of Limitations in Florida

In 2013, the Supreme Court of Florida took on the case of Raymond James Financial Services Inc. v. Barbara J. Phillips. This case involved a dispute of the state statute of limitations and the FINRA eligibility rules. In their decision, the court disallowed a broker negligence claim on the grounds that the state statute of limitations had already passed. The court did this even though the FINRA clock had not yet run out.

The claims were brought more than four years after the last allegedly unsuitable purchase, though less than six years after that transaction. This was a problem for the investors, as Florida state law limits broker negligence claims with a four year statute of limitations. The Supreme Court ruled in favor of the brokerage firm, determining that Florida state law limits both traditional litigation and arbitration proceedings.

The Bottom Line: It is Complicated. Take Action Now

Time limits in broker fraud/negligence cases are extremely complex. There are many different overlapping factors at play. Depending on the specific facts of your case, you may need to deal with:

Things are made all the more complicated by the fact that it is not always clear exactly when the statute of limitations clock should start ticking. For example, if you are dealing with a lack of diversification claim, it is very likely that several different transactions, perhaps over a period of many years, went into making that claim. Courts and arbitrators may need to consider all of these transactions as one ‘event’ for the purposes of calculating the statute of limitations. This exact same issue comes up with other common investor losses claims, such as unsuitable investment claims and excessive trading claims.

Your attorney will need to review your individual case in detail to assess how the statute of limitations and FINRA arbitration regulations apply to you. If you have sustained investment losses, you need to protect your legal rights and financial interests by taking immediate action. Get an attorney involved as soon as you possibly can. The last thing you want is to lose out on a valid claim simply because of an obscure legal technicality like the statute of limitations.

Get Legal Help Today

At the Sonn Law Group, our team has been fighting for investor rights for nearly three decades. Let us help you recover the full and fair compensation you deserve. To request a free review of your claim, please contact our main office in South Florida today at 844-689-5754 or email us directly through our website.

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