Does a securities arbitration panel have the power to award punitive damages?
In Washington, a securities arbitration panel generally does not have the power to award punitive damages. Punitive damages are a type of damage award meant to punish the wrongdoer and deter future wrongdoing, rather than to compensate the victim. Securities arbitration is a dispute resolution process through which the parties to a financial transaction can seek resolution of their dispute without the need to initiate litigation or trial. In Washington, the legal authority that governs securities arbitration and its enforcement is the Washington State Securities Act of 1971. According to this act, punitive damages are not typically available in securities arbitration cases or other forms of dispute resolution. There are some exceptions, such as cases involving a violation of Washington’s Consumer Protection Act, but they are rare. The rationale behind prohibiting punitive damages is that they would create an unpredictable outcome and thus undermine the entire arbitration process, as well as weaken incentives for parties to work together to achieve a mutually beneficial resolution. Furthermore, awards of punitive damages in financial matters could lead to unexpected and potentially unlimited liability. Ultimately, securities arbitration panels in Washington do not have the power to award punitive damages due to the state policy and regulations that govern securities arbitration.
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