The Number of Very Large Securities Arbitration Cases is on the Rise


The amount of dollars at stake in FINRA securities arbitrations has grown in recent years. Of the 7,000 claims currently pending, approximately 200 involve claims of $10 million or more. “The claims coming in now are substantially larger than what we had a few years ago,” Linda Fienberg, president of FINRA Dispute Resolution, was quoted as saying. (“FINRA flooded with multimillion-dollar cases,” Nate Raymond, The American Lawyer).

The claimants in these larger cases are institutions and wealthy individuals, who are often sophisticated in matters related to their businesses, but not necessarily in matters related to investments and wealth management ? the areas of expertise that Wall Street firms such as Citigroup hold themselves out as providing to their clients.

The amount of awards issued in FINRA cases has gone up, too. In the last two years, FINRA arbitration panels have ordered Credit Suisse to pay $406.6 million to STMicroelectronics, UBS to pay $80.8 million to Kajeet Inc., Merrill Lynch to pay $63.7 million to Rosen Capital Management LLC.

Most recently, Citigroup Global Markets, Inc. was ordered to pay $54.1 million to three claimants who were sold Citigroup’s disastrous MAT/ASTA municipal arbitrage funds. The claimants alleged, and the arbitrators agreed, that Citigroup mismanaged and falsely marketed to traditional fixed income investors as safe and sound alternatives to municipal bonds. The award included $17 million in punitive damages and $3 million in attorney’s fees.

That MAT/ASTA case is the subject of a recent article by noted New York Times columnist Gretchen Morgenson called “Secrets of a Sales Machine.”

The securities industry created securities arbitration to be final and binding, and made it mandatory, requiring customers to waive their right to go to court in order to open an account. Now these same firms are trying to force arbitration claimants into court in some very large dollar cases, according to the article.

In addition, more Wall Street firms are going to court to try to vacate very large arbitration awards. Courts rarely overturn arbitration awards, but given the amounts of some of the awards, Citigroup and other Wall Street firms are trying.

FINRA recently announced plans for a pilot program for cases with claims of more than $5 million. The pilot program (limited to the Northeast and West Coast regions) would allow the parties more leeway in selecting arbitrators, paying them more, and agreeing to take depositions (typically not done in arbitration).

Page Perry is an Atlanta-based law firm with over 170 years collective experience protecting investor rights, fighting Wall Street greed.