Research Handbooks in Financial Law series
Edited by Jerry Markham and Rigers Gjyshi
Chapter 15: Private rights of action under U.S. securities laws: key differences between litigation and arbitration of securities disputes, limited right of action against investment advisers, and the uncertain future of class litigation
When a customer wants to bring claims against securities broker-dealers or their salespersons for violations of the law or the rules of self-regulatory organizations, it is important to bear in mind the differences between arbitration and litigation of such disputes. If one has a choice of forum (in most cases, the agreement between the customer and the dealer will mandate arbitration), these differences may be crucial when deciding whether to bring the claims in court or in FINRA arbitration. With respect to investment advisers (who are not FINRA members and therefore not subject to mandatory FINRA arbitration), violations of the Investment Adviser Act may give rise to a private right of action for rescission. However, there are limitations on who may be liable for such violations, and money damages are unavailable. Finally, class actions in the courts have long been an important vehicle for vindicating claims based on violations of securities laws. But recent developments within FINRA and the U.S. Supreme Court now threaten their existence. Prior to 2007, there were two dominant self-regulatory organizations with jurisdiction over almost all brokers and brokerage firms: the National Association of Securities Dealers (“NASD”) and the New York Stock Exchange (“NYSE”). The Financial Industry Regulatory Authority (“FINRA”) was created on July 30, 2007, when the NASD and NYSE merged their regulatory, compliance and arbitration functions.
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