Everyone knows, and has known, including apparently the US Congress, that Wall Street’s Kangaroo Court, also known as FINRA Securities Arbitration, is a sham. In 2008, based upon the perceived unfairness of arbitration, and particularly, the “unwillingness” of the judiciary to earnestly examine “egregious” arbitration awards, motivated Congress to seek to make these arbitrations “voluntary.”
On July 12, 2008, Congress introduced Senate Bill 1782, entitled the “Arbitration Fairness Act,” based upon a Congressional finding that:
Mandatory arbitration undermines the development of public law for civil rights and consumer rights, because there is no meaningful judicial review of arbitrators’ decisions. With the knowledge that their rulings will not be seriously examined by a court applying current law, arbitrators enjoy near complete freedom to ignore the law and even their own rules.
Senate Bill 1872 at Section 2 (July 12, 2008, 110th Congress, First Session).
Wall Street Angered
Wall Street was of course not happy, and something had to give, so rather than seeing monumental change, to assuage the concerns of Congress, investors, and investor associations, and to remove the perception of bias, (including actual bias), everyone, including the United States Securities & Exchange Commissions agreed that in all FINRA securities arbitrations the customer/injured investor gets to decide as to whether they want an arbitration panel comprised of all “public” arbitrators, i.e. persons with no professional ties to the securities industry, or an arbitration panel consisting of at least one industry shill or “non-public arbitrator.”
In 2011, FINRA started the All Public Arbitrator pilot program, and about a year later, formally amended the Code of Arbitration Procedure, to include the right of injured investors to chose whether they wanted a person from the securities industry to arbitrate their claims against the same securities industry.
FINRA Public Arbitrator Statistics
Sounds legitimate, and in fact, as of last week, FINRA statistics reveal injured investors who had their cases decided by all public arbitrators, since 2011, prevailed 52.6 percent of the time, almost 70% more than injured investors who had their cases heard by a non all public panel. Investors in those cases only “won,” whatever that means, or i.e. recovered at least $1, only 33.2% of the time.
However, the problem arose who is really a non-public or industry arbitrator. Under the old Rules, if someone worked for a hedge fund, investment advisor, mutual fund, they and their family members were not considered industry arbitrators. Under the old Rules, a lawyer or other person actually employed by the financial industry for most of their life defending customer claims, and defending the industry, a few years after they quit or retired, lost their industry association and were eligible to serve as public arbitrators.
Last week, the SEC approved a proposed FINRA Rule where attorneys, accountants and other professionals working for financial firms, which now includes hedge funds, mutual funs and investment advisory services, for more than 20 years permanently cannot be a public arbitrator.
Persons working for less time, say 19 years, can serve as a public arbitrator five years after the termination of their association.
SIFMA or the Securities Industry Financial Markets Association, of course, at least based upon their comments to the SEC, vigorously opposed this new Rule. Industry commentators suggest that the industry person on the panel helps both sides and the new rule will make arbitration more not less expensive because an expert will be a necessity, which is interesting because the industry in these cases always seems to find the necessity in every case to parade in a paid expert that always attests in my experience that no one did anything wrong.
I guess now there will be only one such expert witness, and that person will be sitting in the witness seat instead of on the arbitration panel.
However, SIFMA did get their bone. Under the new Rule, lawyers, including those lawyer who represent claimants, cannot not be considered “public” arbitrators for five years after they stopped representing investors. Lawyer who have been representing investors in these claims for more than 20 years, i.e. lawyer that represent the “public,” people like me, are now permanently barred as ever serving as “public” arbitrators.
Seems fair. At least it saves me the disappointment from not being everyone’s first choice.
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 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.
