An organization of attorneys who represent investors in securities arbitrations has filed a petition with the Securities and Exchange Commission to eliminate FINRA’s requirement that, in cases over $100,000, one of the three arbitrators must be a person affiliated with the securities industry. The organization is known as PIABA, which stands for Public Investors Arbitration Bar Association. In the interest of disclosure, J. Boyd Page, a Senior Partner of Page Perry, was a founder and past president of PIABA.
FINRA currently has a pilot program that provides an all-neutral panel arbitrators for certain cases. FINRA’s petition seeks to make that program permanent and mandatory in all cases involving investors. (FINRA also provides a forum for intra-industry disputes that do not involve investors.)
The securities industry is expected to fight to keep their built-in advantage against investors who file arbitration claims against them. Arbitration is mandatory for most investors. Arbitrators are supposed to be fair and impartial in both appearance and fact. PIABA believes that securities arbitrations should be decided by arbitrators who are not aligned with one party or the other.
It is inherently unfair to have an industry arbitrator on a panel, especially in cases that involve allegations of industry-wide misconduct. The potential bias is just too great and obvious. Moreover, given today’s high unemployment, and particularly unemployed brokers, industry arbitrators may see the Respondent firm in an arbitration as a potential employer ? as long as he or she does not sign off on a large award against that firm.
Put another way, if a used car dealer sold you a lemon, would it be fair to require that your grievance be heard in a forum sponsored by an association of used car dealers with one of the three arbitrators being a used car salesman? Of course not. It is no less unfair to require investors to file their claims in a forum sponsored by the brokerage firms’ trade organization (which until recently was called the National Association of Securities Dealers) with one of the arbitrators being a used securities salesman.
If both parties wish to have an industry arbitrator on the panel, they should be allowed to do so. But we should not force investors to submit their claims to panels of arbitrators that are, in appearance and fact, not neutral.
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. Page Perry’s attorneys are actively involved in representing investors in securities cases. For further information, please contact us.