Securities Mediation

Mediation is an informal, voluntary process in which an impartial person, trained in facilitation and negotiation techniques, helps the parties reach a mutually acceptable resolution. What distinguishes mediation from other forms of dispute resolution – principally, arbitration and litigation – is that the mediator does not impose a solution but rather works with the parties to create their own solution. Mediated solutions often include relief not available in arbitration or litigation.

Mediation is flexible and creative. The actual process varies from case to case depending largely on the parties’ needs and the mediator’s style. Usually, the parties meet to discuss the issues face-to-face. The mediator helps the discussions remain focused and productive. Then, the mediator may hold private caucuses with each party separately, and will carry messages-clarifications, questions, proposals, offers, and counter offers-back and forth between them. The mediator uses the private caucus and other techniques to facilitate the negotiation.

Mediation is non-binding. The emphasis is on fashioning a solution satisfactory to all. However, if the parties cannot negotiate an acceptable settlement, they may still benefit from the process by narrowing the issues to be arbitrated or litigated.

Benefits of Mediation:

  • Control – Mediation belongs to the parties. The disputing parties control the process, scheduling, costs, and outcome of the dispute.
  • Less Adversarial – The mediation process is informal. It is less confrontational than arbitration or litigation.
  • Preserves Options – Parties can enter into mediation without jeopardizing their option to arbitrate or litigate.
  • Swift Settlement – Most mediations are successfully concluded in a single day. Since mediation can be scheduled soon after a dispute arises, parties reach settlement much earlier than in arbitration or litigation. Many mediations conclude before a formal arbitration claim is filed.
  • Lower Cost – Mediation usually entails lower legal and preparatory costs, there is minimal interruption of business or personal life, lost productivity is kept to a minimum, and the fees and expenses of mediation are modest.
  • Preservation Of Business Relationships – By reaching an early resolution with minimal financial or other strain on either party, the chances for preserving business relationships are greatly enhanced.
  • Protects Privacy – Mediation offers greater confidentiality than arbitration.
    Creative Solutions – Mediators help the parties craft creative solutions.

Who Are FINRA Mediators?

The mediator’s role is to assist and guide the parties toward their own solution by helping them to define the important issues and understand each other’s interests. The mediator focuses each side on the crucial factors necessary for settlement and on the consequences of not settling. The mediator does not decide the outcome of the case and cannot compel the parties to settle.

The mediator can defuse hostile attitudes and remedy miscommunications. The mediator is a mirror of reality, who can help soften or eliminate extreme negotiating positions. Through the mediator, parties assess weaknesses in their own case and recognize potential strengths of the other side. The parties can more clearly view matters previously distorted by anger and emotion.

FINRA mediators are knowledgeable in the subject matter of the controversies. Within the privacy of the caucus, mediators can help each party analyze the strengths and weaknesses of its complete case. Most significantly, the mediator can explore creative and innovative solutions that the parties-caught up in adversarial negotiations-might never contemplate.

FINRA mediators are independent neutrals, and are not employees of FINRA Dispute Resolution. They are carefully screened and represent a cross-section of people, diverse in culture, profession, and background. Many have extensive knowledge of securities law and industry practices.

Many FINRA mediators are also arbitrators with training and experience in resolving securities matters. However, the skills required for each role are unique, and the two neutral pools are separate and distinct. NASD rules prohibit an individual from serving as both a mediator and arbitrator on the same case.

FINRA Dispute Resolution staff and FINRA’s Mediation Committee vigorously scrutinize each applicant against demanding qualification criteria. To qualify as an FINRA mediator, an individual must submit four letters of reference from parties who have observed the applicant’s mediation technique. Formal mediator training and experience as a mediator are additional requirements of service. All parties must agree to the selection before a mediator is assigned to a case. Either side can stop the mediation process if dissatisfied with the mediator.

In the United States there are only a limited quantity of experienced securities mediators, and experienced counsel for all parties know, or have worked with these mediators, whom are generally well known within the securities litigation industry.

Whether using the facilitative or evaluative approach, or a combination thereof, the parties need to respect the credibility of any mediator in connection with the independent perception and assessment of important legal issues that will effect both sides to any securities arbitration or litigation.

Negotiation Of Settlement

Good cases settle in mediation. Bad cases also settle in mediation. The only difference is for how much do they settle.

Respondent’s counsel, or the lawyers for the brokerage firm or stockbroker are generally highly experienced, and as such can reasonably contemplate how the facts and issues in any securities fraud arbitration are likely to play out in front of a securities arbitration panel.

Claimant’s counsel or the lawyers for the investor are also generally highly experienced and also know and understand how a the issues and facts in any case is most likely to play out, or be perceived by an arbitration panel.

Litigation involves risk, and no matter what either party may think of the respective merits of any claims or defenses in any securities arbitration, the outcome following a final evidentiary hearing is always uncertain for both parties.

Securities mediation allows the parties to avoid that risk, and allow the parties, with the assistance of the mediator, to evaluate and understand the relative strengths and weaknesses of their respective positions and arrive at an equitable settlement, where it is often said, both parties walk away a little unhappy. The claimant investor took less money than they thought they were entitled to, and the respondent brokerage firm paid more than they ever imagined. However, securities mediation is often superior to an arbitration award rendered after a final hearing where one party is certain to walk away very, very unhappy, and that unhappy party just might be you.

Throughout the mediation process, the mediator will help the parties negotiate effectively. Efforts to reach a settlement through mediation will continue until: (a) the parties agree to a resolution and execute a written settlement; (b) the parties conclude that further efforts to mediate the dispute would be futile and declare the negotiations at an impasse; or (c) any party or the mediator withdraws from the mediation process for any reason.

Good mediators, however, will stick with the mediation long after it ends and tempers cool.

How Successful Is Mediation?

Historically, parties settle most business disputes submitted to mediation. Mediation experts attribute this to the parties control over the process, costs, and outcome. The parties approach the process with confidence, leading to successful resolutions. Approximately 80 percent of the cases in the FINRA Mediation Program settle within a few weeks to a few months of the parties formal agreement to mediate.

Mediation is valuable even when the parties do not reach full settlement. Sometimes parts of a dispute are resolved in mediation, leaving fewer or less extreme differences to be resolved in arbitration or litigation. Gaining agreement on collateral issues can translate into significant savings of time and money for everyone involved.

The mediation process improves communications, narrows outstanding issues, defuses emotions, and defines areas of agreement. Through the mediation process, the parties and their representatives also learn where to focus their energies should arbitration or litigation become necessary. Therefore the parties future dispute resolution efforts become more efficient.

What If Settlement Is Not Reached?

Most parties express satisfaction with the mediation process even when they do not reach full settlement. Proper preparation for the mediation session readies the parties for the arbitration. During the mediation process the parties and their representatives gain a better understanding of their case. This, in turn, helps them focus on the necessary next steps. Further, the mediation process moves very quickly and does not delay the ultimate resolution. Finally, by the end of a single day of mediation, the improved lines of communication often place the parties in a better position to settle the case at a later stage.

When a settlement is not reached, at least both parties know what they were walking away from. Sometimes, stubborn respondent brokerage firms refuse to offer a meaningful settlement and find themselves the subject or securities arbitration awards ordering them to pay multiples of what they could have settled at a securities mediation, together with hearing costs, interest and attorney’s fees.

However, it is a two-way street, and sometimes the claimant investor walks away from a settlement offer obtained during a securities mediation believing that they are entitled to more, or that the offending stockbroker or brokerage firm needs to punished at a final hearing. All too often, however, these are the same investors that get a zero award or lose their cases, or get an award that is only a fraction of what they could have settled their case at securities mediation and also avoid the time, cost and risk associated with a final evidentiary hearing.

Guiliano Law Group

Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.

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