Wall Street Opposes Move to All Public Arbitration Panels
The Financial Industry Regulatory Authority (FINRA) said it will file a proposed rule with the Securities and Exchange Commission this month to allow all investors filing arbitration claims the option of having an all-public panel of arbitrators. Brokerage firms have indicated their opposition, but not too vehemently, “perhaps because the alternative is more worrying: an end to mandatory arbitration altogether,” according to a Wall Street Journal article by Daisy Maxey, entitled “’Public’ Arbitration? Brokers Balk.”
Generally, in cases filed by investors claiming amounts of more than $100,000, FINRA allows the parties to select a panel of three arbitrators with one panel member connected with the securities industry and two panel members not connected with the securities industry (i.e., “public” arbitrators, at least according to FINRA’s definition).
FINRA’s use of the “non-public” or “industry” arbitrator in cases filed by investors has been criticized by investor-advocates as injecting an inherent bias in favor of the securities industry. Brokerage firms and their attorneys have argued that the system is fair.
FINRA began offering a limited, two-year “all-public panel” option to some investors on October 6, 2008, in part to see whether awards were more favorable for investors when panels did not include a member of the securities industry. So far, investors have filed about 560 cases as “all-public panel” cases. Most of the 560 cases settled prior to an award. But of the 23 cases that resulted in an award, investors won 71% of the cases as compared to only 50% of the cases decided by panels with an industry arbitrator, according to the article.
Nonetheless, the Securities Industry and Financial Markets Associated (SIFMA) contends that data from the pilot program "demonstrate that non-public arbitrators contribute to fair case outcomes," according to the article.
Attorneys who represent investors are pushing for an end to the system of mandatory arbitration altogether, which would allow wronged investors take their cases to court.
J. Boyd Page, senior partner of Page Perry, LLC in Atlanta, said: “Arbitrators and the arbitration process are supposed to be neutral. At a minimum, a panel with a member who is affiliated with the securities industry creates an appearance of prejudice or bias. Given the extensive movement of financial advisers from one firm to the next, it is virtually impossible to know whether a proposed industry arbitrator’s friends or colleagues work at the firm a customer is suing. We applaud FINRA’s decision to move in the direction of neutrality.”
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys have extensive experience in representing investors in securities matters. For further information, please contact us.
