Bloomberg reports that the Financial Industry Regulatory Authority (FINRA) summarily removed from its roster three arbitrators who served together on a case in which the investor was awarded more than $500,000 and has refused to even discuss the matter with the arbitrators, despite the absence of any impropriety. (“Wall Street’s Captive Arbitrators Strike Again,” by William D. Cohan, Bloomberg).
The three arbitrators are Fred J. Pinckney, Ilene Gormly, and Daniel Kolber. Mr. Pinckney is an Atlanta attorney who has practiced law since 1973 and served as General Counsel to a healthcare company.
Ms. Gormly is the chairperson and former compliance executive at a commercial bank. Mr. Kolber is a securities law attorney and founder of Intellivest Securities, Inc., a small Georgia investment bank.
In May 2011, these arbitrators found in favor of a customer in a securities arbitration against Merrill Lynch. Mr. Cohan writes: “After awarding the estate of the customer more than $520,000 — a large amount by arbitration standards –Finra heard from unhappy Merrill executives and fired the arbitrators, two of whom had many years of experience.”
“You mete out justice, and then you get slapped in the face,” one of the fired arbitrators, Mr. Pinckney was quoted as saying.
In December 2009, Robert C. Postell, of Alpharetta, Georgia, and his wife, Joan, filed an arbitration claim against Merrill Lynch for more than $640,000 in compensatory damages plus costs and attorney’s fees. Claims were asserted for breach of contract and breach of fiduciary duty, related to Merrill Lynch’s failure to adequately monitor their accounts.
Mr. Cohan writes: “Not surprisingly, the brokerage, through its attorney, Terry Weiss, of Greenberg Traurig LLP, in Atlanta, denied the Postells’ claims.”
In May 2011, the Postells’ arbitration claim was heard in seven sessions over four days. At the final hearing, the arbitrators were informed that Postell had committed suicide and his estate, along with Joan, would be the beneficiaries of any award.
Mr. Cohan writes: “Also during the final hearing, according to Pinckney, Weiss, Merrill’s attorney, sensed that he was losing the case and repeatedly ‘exploded at the panel,’ accusing the arbitrators of being biased in their views and rulings against Merrill.” The arbitrators called FINRA executives, explained Weiss’s accusations, and continued the proceedings with FINRA’s approval, according to the article.
The arbitrators handed down their award on May 18, 2011.
About two months later, Mr. Kolber received a letter from FINRA explaining that FINRA periodically examined its roster of arbitrators and culled people from it. “As a result,” Kolber’s letter reportedly read, “please be advised that you are no longer being listed as an active member of Finra’s dispute resolution roster of arbitrators.”
Ms. Gormly received a essentially the same letter in January 2012. Mr. Pinckney received his in June of this year. FINRA executives reportedly denied a request from Mr. Kolber for a meeting.
Ms. Gormly sent a “whistle-blower” letter to the SEC, describing the situation. She is still waiting on a response. “I told her that she will probably be waiting until hell freezes over,” Mr. Pinckney was quoted as saying.
Mr. Cohan concluded: “Pinckney is pretty disgusted by this turn of events, especially since there were no grounds to appeal the arbitrators’ decision in the Postell case and no appeal was filed. Nothing about what the three arbitrators did was ever questioned, except by Weiss, the Merrill lawyer who saw his case being lost.”
“It’s unbelievable that they would take such an experienced panel and get rid of it,” Mr. Pinckney was quoted as saying, adding: “To me, this undermines the credibility of the entire Finra process ‘.”
Investor attorney J. Boyd Page of Atlanta-based Page Perry, said: “It is outrageous if FINRA has eliminated these arbitrators for no reason other than they found for an investor and awarded a substantial sum of money, albeit less than 100% of the requested compensatory damages. Congress should require FINRA to show why it removes arbitrators from its roster. It certainly is suspicious that all three arbitrators in this case were removed from FINRA’s arbitrator roster so soon after the decision. If this is a case of blacklisting, as it appears it may be, that would demonstrate pretty convincingly that the current system of mandatory arbitration is irretrievably corrupt and arbitration should only occur at the option of the investor.”
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.