Financial crises have a way of jolting investors into seeing that perhaps their brokers weren’t such trustworthy advisers after all. Requests for arbitration hearings are up 85 percent so far this year at the Financial Industry Regulatory Authority, the only place investors can go when they think they have been fleeced. Going to court isn’t an option for the aggrieved investor because no brokerage firm will open an account until a customer gives up the right to trial.
Considering all the new complaints, it would be comforting to think that a little justice might be done. With luck, we might demand restitution from a few auction-rate securities hawkers here and punish a few Ponzi schemers there. Too bad it’s just as likely that the same chumps who fell for Wall Street’s array of misleading products are headed straight into a justice system that will take them for a second ride.
Downside of Wall Street Arbitration
More than half the investors who go through a Wall Street arbitration get nothing at all, and those who do win get about half what they claim to have lost. Once they are in a hearing room, investors typically face a panel of three judges that includes someone from the very industry that got them into the mess in the first place — Wall Street.
People would ask “what have you been smoking” if you said you were involved in a medical malpractice trial where four doctors on a 12-person jury were deciding the case. On Wall Street, though, all trials have a representative of the defendant’s industry among the decision-makers. It’s a mandatory trial with a stacked jury.
Arbitration Fairness Act
Arbitration Fairness Act, a bill that would make it illegal to force investors and other consumers to agree to give up their rights to go to court before they even buy a product, whether it be a cell phone, a refrigerator or some sketchy merchandise packaged as a risk-free investment. Considering Feingold’s bill, Wall Street’s shame and Washington’s new vigilance about financial regulation, you might figure that President Barack Obama’s regulatory overhaul unveiled last week would include some tough talk about killing off mandatory arbitration. But you would have figured wrong.
Obama’s plan devoted a single paragraph to what happens to investors once they realize they got shafted. The Securities and Exchange Commission “should study the use of mandatory arbitration clauses in investor contracts, and then pursue legislation if appropriate”, it says.
Study Hard
We have two decades of studies showing that securities arbitration forces investors to give up rights, favors the industry and shortchanges the investor who already has been worked over. It’s time to kick Wall Street arbitrators off these juries, and offer arbitration only as an option, not a requirement. The study-and-delay dance is a copout. If the president is aching to read a The two academics surveyed 3,000 investors, lawyers and securities employees and discovered that only 28 percent of wronged customers who got involved with arbitration thought the process was fair. Only 25 percent were willing to say their private judges were impartial. How many versions of “We don’t think this is fair”, do we need at this point?
Guiliano Law Group
Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
