A recent academic study found that arbitrators who represented brokerage firms or brokers in other arbitrations awarded significantly less compensation to investor-claimants than other arbitrators. See Attorney’s as Arbitrators, by Stephen J. Choi, New York University, Jill E. Fisch, University of Pennsylvania, and A. C. Pritchard, University of Michigan, January 2009. This finding comes as no surprise to those who are familiar with securities arbitration and the securities industry.
FINRA arbitration has been criticized ? consistently and rightly ? as favoring the securities industry over the interests of investors. See, for example, Gretchen Morgenstern, Is this Game Already Over, N.Y. Times, June 18, 2006. This criticism focuses on FINRA’s use of industry arbitrators ? those with present or recent employment ties with securities brokerage firms.
Securities arbitration is run by the Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers (NASD) Regulation, Inc. FINRA is nothing more than a Wall Street trade association masquerading as a regulatory body. There is no alternative securities arbitration venue. According to FINRA, the industry arbitrators who decide securities arbitration cases are “fair and impartial in both appearance and fact.” That is not true, and the industry arbitrator should be eliminated.
Simply put, Wall Street is too rife with self-dealing to judge its own misconduct fairly and impartially. Almost every day brings new examples of the industry’s greed and dishonesty. For example, on Friday this blog reported that Wall Street securities firms that received hundreds of billions of dollars of bailout money from U.S. taxpayers paid out $18.4 billion in bonuses in 2008 ? a year in which Wall Street firms lost $47.2 billion. The big bonuses were paid to many of the people who are most responsible for concocting and selling the toxic waste that wrecked the economy and necessitated the bailout. Adding insult to injury, Merrill Lynch’s CEO spent over $1 million to decorate his office as the firm was asking for bailout money. The New York Attorney General has launched an investigation. When confronted, Wall Street claims (absurdly) that bailout money was not used for bonuses and decorations.
Have thunder and lightning vanished in the clouds? Where is the outrage? Letting Wall Street judge its own misconduct is a transparent farce ? nothing more than the fox guarding the henhouse. Those with the power to put an end to it should do so now, and make securities arbitration the truly fair and impartial process it is supposed to be.
Page Perry 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, and have aided clients who have been the victims of financial adviser abuse, unsuitable recommendations, and scams. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their investment problems. For further information, please contact us.