Eligibility for Filing a FINRA Claim 

What are the time limits for filing a FINRA Dispute Resolution claim? The time to file a claim for purposes of FINRA eligibility does not always run from the date of purchase, although brokerage firms may argue it is so. 

FINRA Rule 12206 Time Limits reads as follows: 

“12206.   Time Limits  (a) Time Limitation on Submission of Claims 

No claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim.  The panel will resolve any questions regarding the eligibility of a claim under this rule.” (Emphasis added) 

This is the eligibility rule applied by arbitration panels when deciding whether a claim is eligible for submission to FINRA arbitration.  Since this is currently one of the only pre-hearing Motion to Dismiss that a brokerage firm is permitted by rule to file, the majority of firms will file an eligibility rule if the date of purchase of the investments at issue is more than six years – always taking the position that the “occurrence or event giving rise to the claim” is the date of the purchase of the investment.

Our firm has successfully argued on a number of occasions that the “occurrence or event giving rise to the claim” is when the client knew or should have known about their claims.   

“Occurrence or event giving rise to a FINRA arbitration claim”

In certain cases, such as those involving complex investments like non-traded REITs, oil and gas limited partnerships, TICs, equipment leasing funds, etc.  the appropriate standard for what constitutes the “occurrence or event giving rise to a FINRA arbitration claim” is when the investor knew or should have known they had a claim. 

FINRA Rule 12206 does not say that the occurrence of event giving rise to the claim is the date of purchase.  This is significant because the FINRA Code of Arbitration Procedure was updated in 2007, with FINRA revising the language of the FINRA arbitration code to make it simpler and easier for people to understand.  FINRA also addressed any rule clarifications at that time. 

Broker-dealers have been attempting to make this same argument for years—that the purchase date is the triggering date for the six-year bar on FINRA claims, however FINRA elected not to revise this rule, instead keeping the original language.   

FINRA Rule 12206 – Case by Case Basis 

Ultimately the appropriate standard for determining the “occurrence or event giving rise to a claim” is completely up to the arbitration panel.  In Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002), the United States Supreme Court determined that when the “occurrence or event giving rise to the claim” occurred is a factual matter to be determined on a case-by-case basis by the FINRA arbitration panel. 

The very fact that the courts have determined that the tolling of Rule 12206 must be determined by the panel on a case-by-case basis establishes that the “occurrence or event” is not inherently the date of initial purchase of the investment as brokerage firms always assert. 

Two recent federal courts have also expressly held that Rule 12206 is not akin to a statute of limitations, and therefore, “the arbitrators [are] free to interpret the rule as they [see] fit, including adding in tolling provisions or a discovery rule.”  See Mid-Ohio Securities Corp. v. Est. of Burns, 790 F. Supp. 2d 1263, 1270-72 (D. Nev. 2011) (Emphasis Added).   

A California federal court agreed, holding that a FINRA panel was “free to interpret Rule 12206. . . with respect to the triggering date, i.e., the ‘occurrence of event giving rise to the claim.’”  Oshidary v. Purpura-Andriola, 2012 WL 2135375 (N.D. Cal. June 12, 2012) (denying motion to vacate award even though claims were filed more than six years after transaction was executed). 

As such, the U.S. Supreme Court and the most recent precedent available makes clear that not only is FINRA Rule 12206 not an absolute or bright line rule that tolls from the date of purchase—as brokerage firms almost always erroneously claim, but that the actual occurrence or event giving rise to the claim is a factual determination to be made by the Panel (i.e. the appropriate standard to apply for purposes of eligibility is entirely up to that Panel to determine for that case). 

The Problem with Alternative Investments and FINRA Rule 12206 

Unlike a stock or mutual fund that is sold on an exchange, there is no market for private placements.  The investors in these products are often led to believe—for years—that their investments are performing exactly in line with the representations of the agents that sold the products to them. 

In the example of non-traded REITs, a type of private placement investment, securities laws and FINRA Rules only require non-traded REITs to re-value their value per share eighteen (18) months after the cessation of the offering of shares.  These offerings generally take several years, so the “cessation” of the offering is often many years after the first investors bought the offering. 

Unlisted Investments – Unknown Values

As for other types of alternative investments, like oil and gas limited partnerships and equipment leasing funds, these products do not even provide a share price.  Instead, the only indicators of the risk, prognosis and performance to date of those investments are the periodic distributions the investor receives making it even more difficult to determine that the investment’s risk or prognosis have been misrepresented. 

Unfortunately, while typically these investments do start out performing as promised, it is only later (often years later) that investors are abruptly given notice that the investment are no longer paying out at nearly the same rate as the investors had been receiving, or in some cases they suddenly stop paying altogether.   

Only then do these investors have any ability to question the veracity of the representations that their brokers had made to them initially about the investments – since there had been no reason previously to question those representations.   

What was the Trigger Event?

Until something goes wrong, investors in these investments simply have no reason to question those past representations or to even consider the need to bring a claim. 

Our attorneys have argued (successfully on several occasions) that it is therefore impossible for investors in these types of investments to know that they have claims at the date of purchase because they believe for the first few years of their ownership in a particular offering that everything is fine as the investment does not show any decline in value on their statements. 

Ultimately, according to Howsam, the appropriate standard for determining the occurrence of event giving rise to a FINRA claim such as “date of purchase” or “when you knew or should have known”, we believe is a factual determination for arbitrators to determine on a case-by-case basis.  However, given the facts in the case of alternative investors, arbitrators seem to be agreeing with our position that the occurrence or event giving rise to the claim with those investments is the trigger event that caused the investor to realize that the investment had been misrepresented. 

Free Consultation with a Securities Attorney

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. 

If you have a question about eligibility of filing a FINRA claim, please call The White Law Group. For a free consultation with a securities attorney, please call the firm’s office at 312-238-9650.  For information on The White Law Group and its representation of investors in claims against brokerage firms, visit http://whitesecuritieslaw.com. 

Tags: FINRA 12206 brief, FINRA deadline to file, FINRA eligibility rule, FINRA eligibility rule primer, FINRA Rule 12206, FINRA rule on how long you have to file, FINRA rule on when to file, FINRA statute of limitation, FINRA Time Limitation on Submission of Claims, Gregory J. Schwartz and Co. Inc. v. Fagan, Howsam v. Dean Witter Reynolds, Mid-Ohio Securities Corp. v. Est. of Burns, occurrence or event giving rise to the claim Last modified: March 12, 2024