Alternative investments can sound sophisticated, steady, and income-focused. In real life, many investors first learn the hard part later: some of these products are difficult to value, difficult to sell, and difficult to unwind when things go wrong.
That is where arbitration often enters the picture.
If you invested in a non-traded REIT, a BDC, a private placement, or another illiquid security through a brokerage firm, and later discovered that the investment did not behave the way it was presented, a FINRA arbitration claim may become part of the conversation. In general terms, these cases often focus on whether the product matched the investor’s objectives, whether key risks were adequately disclosed, whether the firm performed a reasonable investigation, and whether the recommendation fit the customer’s liquidity needs, risk tolerance, age, and account profile.
In this post you’ll learn what illiquid securities are, why alternative-investment disputes often end up in arbitration instead of court, what legal theories frequently appear in these claims, what evidence tends to matter, and why these cases can look different from claims involving publicly traded stocks. For background on the products themselves, it may help to start with this overview of how non-traded REITs, BDCs, and other alternatives work.
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An illiquid security is an investment that cannot be sold quickly in a ready public market at a transparent, continuously updated price. That broad category can include non-traded REITs, non-publicly traded BDCs, Regulation D private placements, equipment-leasing programs, certain oil and gas offerings, tenant-in-common interests, and other alternative products.
Federal investor guidance has long described non-traded REITs and private placements as illiquid, meaning investors generally cannot sell them readily on an exchange and may have to wait for limited repurchase windows, a listing event, liquidation, or some other uncertain exit path. The SEC’s Investor.gov materials also explain that privately offered and non-publicly traded BDCs can involve sporadic or delayed opportunities for sale, along with leverage, fees, and valuation complications (Investor.gov on non-traded REITs, Investor.gov on non-publicly traded BDCs, Investor.gov on private placements).
That lack of liquidity is not a side issue. In many customer disputes, it becomes the center of the claim.
Most disputes between retail customers and brokerage firms are handled in FINRA arbitration rather than in court. FINRA Rule 12200 provides that parties arbitrate under the Customer Code when arbitration is required by written agreement or requested by the customer, the dispute is between a customer and a member or associated person, and the dispute arises in connection with the member’s business activities (FINRA Rule 12200).
That matters because many brokerage account agreements include predispute arbitration clauses. FINRA also explains that its Dispute Resolution Services forum is the largest securities dispute resolution forum in the United States, and that a substantial share of customer cases resolve before a final hearing. FINRA states that approximately 69% of customer cases result in settlements reached by the parties (FINRA Resolution And Results For Customers).
As of FINRA’s 2025 year-end dispute statistics, customer case filings totaled 1,643, with overall turnaround time listed at 13.4 months, although actual timing can vary meaningfully based on complexity, discovery disputes, panel scheduling, and settlement activity (FINRA 2025 Dispute Resolution Statistics).
A public-stock case often turns on a visible price decline, a trade confirmation, research, or concentrated exposure that can be tracked day by day. Illiquid securities claims often look different because the problems may stay hidden for longer.
With alternative investments, investors frequently do not see real-time market pricing. Account statements may carry sponsor-provided values, estimated net asset values, or stale prices that do not necessarily reflect what the investor could actually receive in a sale. In some cases, distributions can create an impression of stability even when the underlying investment is deteriorating. Investors may also discover that redemption programs are limited, suspended, or subject to heavy discounts.
That is one reason these matters can be harder to spot early. It is also one reason case development often requires a closer review of the original sales process, offering materials, account records, suitability information, and supervisory documentation. If you want a deeper comparison, it can help to read more about why illiquid products create different arbitration problems than ordinary stock cases.
The most common products in this area include: