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In the last issue, I wrote about two of my senior citizen clients that through the auspices of the Financial Industry Regulatory Authority (FINRA) mediation, they were able to recover most of their losses from the stock market. Their broker had placed them into investments that were clearly unsuitable for a couple that was planning retirement in just a few years.

When they came to my office for help, they were terribly depressed, since half of their retirement funds were lost. They did exactly what their broker recommended and could not understand why after following his advice; they lost half of their money even though their broker assured them that their investments would recover and that they would make a profit.

After preparing their claim and submitting it to FINRA, the parties decided to mediate the dispute, which only took a couple of months, rather than arbitrate, which would be much more costly and take a year and a half. They had a strong case, and we were able to prove to the mediator and the representatives of the brokerage house that the recommendations made by the broker may have been suitable for a couple in their 30s that were willing to assume risk for high returns, but certainly not for senior citizens. The husband and wife planned to work just a few more years before retirement and therefore did not want to gamble with their life's savings. As a result of the settlement they received from mediation, they were able to retire, pay off their mortgage, and have enough money to spend time with their grandchildren and shower them with gifts.

What were the other reasons we elected to mediate their claim for losses rather than seek arbitration?

Mediation is an informal procedure. The mediation hearing is held at the offices of FINRA, which in this area is in Newark, New Jersey, or New York City. Those present were the mediator, whose function it was to facilitate conversation between the parties, my clients, and I who served as their representative, as well as representatives of the brokerage house. The mediator explained his function to the parties and assured them that it was not he who would offer a settlement figure, but rather it would be a joint decision among the parties. He also stressed that if the parties could not agree on a settlement, that they could go forward to arbitration where they would testify under oath, introduce evidence, and have witnesses to add credibility to their claim. The settlement amount was now determined entirely by the arbitrators and could not be appealed.

During mediation, the parties control the outcome. Generally, the respondent (the brokerage house) will make several offers to settle with the claimant (individual investor) and if the claimant is agreeable to the highest offer, the case will be settled.

When a settlement is agreed upon in mediation or arbitration, both parties will leave their files, which may have taken months to develop at the offices of FINRA where after a period of time, they will be disposed of.

Both the claimant (customer) and the respondent (brokerage house) generally prefer to mediate a claim first. If the mediation goes well and the claimant receives a cash settlement, there is no record of the hearing. On the other hand, if an amicable agreement cannot be arrived at, and the claim goes to arbitration, a brief record will be published in The Wall Street Journal setting forth the names of the parties and the amount of the award. When the FINRA arbitrators issue an award against the brokerage house in favor of the customer, this becomes a permanent mark against the brokerage house, which can be viewed on the internet on the Web site www.nasdr.brokercheck.com or by calling (800) 289-9999. If the broker has ever had any claims filed against him for acts discreditable to the FINRA rules and regulations, it will appear on his profile, along with amounts he was compelled to reimburse his clients for their losses. I always advise my clients before investing, to check with FINRA to see if their broker has ever had any disclosures entered against him, which might send a message to look for another broker.

In the next issue, I will discuss the case of one of my widow clients, who found herself managing her own finances for the first time and within three months, as a result of her broker's recommendations, lost 25 percent of her life savings.

Howard Hirschhorn is a Certified Public Accountant in New Jersey and New York. He is also an Arbitrator for the Financial Industry Regulatory Authority (FINRA). He has represented investors before FINRA who have received significant settlements. He can be contacted at (732) 566-7671.