Wednesday, September 29, 2010

FINRA Proposes to Drop Industry Arbitrator Requirement

FINRA announced on Tuesday that it is going to propose a rule change which will permit investors in all cases filed with the agency to choose to have their claim decided by a panel of three public arbitrators. Currently, arbitration panels at FINRA are comprised of two public arbitrators and one arbitrator that has some connection to the financial industry.

Quite honestly, this is all much ado about nothing. There was a time when an industry arbitrator was beneficial to the process. However, during recent years, as FINRA changed the rules so appease investors, the definition of an industry arbitrator has become so expansive as to be meaningless in many cases. Clerks, runners, and secretaries who work at brokerage firms are considered industry arbitrators, and while they do a fine job, they do not offer any industry knowledge to the arbitration panel because of their industry "affiliation."

The entire concept of an industry arbitrator is a problem. First, it gives a perception of bias, even though there is no restriction on having a customer attorney on a panel. There is simply no reason to require an industry arbitrator. Put out the list, give everyone a choice, and if the parties and their counsel feel that an industry arbitrator would be helpful in a case, they will pick an arbitrator with that affiliation. Or not.

One interesting fact that comes out of the pilot program - 50% of the customers who were given the opportunity to have an all public panel still put an industry arbitrator on the panel.

I have handled hundreds of FINRA/NASD arbitrations. There is simply no benefit in requiring an industry arbitrator, and far too much controversy over the requirement. FINRA should have done away with the concept years ago.

The only problem is, who are investors going to blame when they lose an arbitration if they don't have the industry arbitrator to kick around?  More>>>

Tuesday, September 28, 2010

FINRA Wants More Details When Someone Gets Canned

FINRA's Regulatory Notice 10-39 is getting quite a bit of attention. FINRA is going to require Broker-Dealers to put more detail on termination notices in the future. The reason for the attention is that once again, we are going to have public disclosure of unsubstantiated allegations against brokers. Making matters worse, in NY at least, brokers cannot sue their firms for defamation, since those comments are absolutely privileged.
On Wall Street has more on the issue, with quotes from yours truly. More>>>

Monday, September 27, 2010

Judge Orders Law Firms to Assign Minorities and Women to Case

I have the utmost respect for Judge Baer, but this is a bit bizarre. According to, the Judge has ordered two plaintiff's class action law firms to "make every effort" to assign women and minority lawyers to the class action case. The rationale is that there are thousands of class members, male and female, from diverse backgrounds. According to the article, Judge Baer said that "it is therefore important to all concerned that there is evidence of diversity, in terms of race and gender, in the class counsel I appoint."

Just great. Federal judges are now making staffing decisions for law firms, based on race and gender. Interesting point is that he appointed the law firms two years ago as lead counsel.  More >>

Wednesday, September 22, 2010

Appellate Court Reinstates SEC vs. Cuban

The Fifth Circuit Court of Appeals reversed the District Court ruling which dismissed the SEC's complaint against Mark Cuban. We previously addressed the merits, or rather the apparent lack of merit, to the SEC's claims here.

However, the appellate court found that there were facts that were in dispute, an that the case should not have been dismissed. The case will proceed back in the District Court. More>>>