Will Public Panels Enhance Financial Arbitration?
According to the NASDAQ web site, the Financial Industry Regulatory Authority ("FINRA") has pledged to push for all-public arbitration panels in short order. Their stated goal is to encourage investor confidence in the way this independent regulator oversees its nearly 5,000 brokerage firms and roughly 637,000 registered securities representatives. Critics cry foul, citing the need for seasoned and knowledgeable industry executives to participate in the arbitration process. Others suggest that a public adjudication might encourage rapid settlements and unfairly harm the reputation of a particular advisor or firm.
Securities Lawyer Blog reports that FINRA's pilot program resulted in about one of every two cases going to an all-public arbitration panel for nearly 600 cases heard in the last twenty-four months.
I understand the need for transparency. However, having served as an expert witness and complete FINRA's dispute resolution training a few years back, I think some cases are going to be difficult to conclude unless all parties understand what are often complex financial issues. Whether members of the public who are not involved in the investment industry can bring that type of knowledge to the situation remains to be seen.
Securities Lawyer Blog reports that FINRA's pilot program resulted in about one of every two cases going to an all-public arbitration panel for nearly 600 cases heard in the last twenty-four months. In its Q&A, FINRA cites various metrics used to evaluate the pilot program. They include the "percentage of eligible investors who choose to participate in the Pilot Program; percentage of investors who choose an all-public panel after electing to participate in the Pilot program; results of Pilot Program and non-Pilot Program investor cases, including the percentage of cases that settle before award and how quickly they settle; length of hearings; and use of expert witnesses in Pilot Program and non-Pilot Program cases."
For those interested in reading more about working with financial experts, click to access "Tips From the Experts: Working Effectively With A Financial Expert Witness" by Susan Mangiero, Expert Alert, American Bar Association, Section of Litigation, Summer 2008.
- Refer to "FINRA Proposes to Permanently Give Investors the Option of All-Public Arbitration Panels," FINRA Press Release, September 28, 2010 for comments by FINRA's CEO, Mr. Richard Ketchum.
- See "FINRA Proposes All-Public Arbitration Panels" by Howard J. Stock, NASDAQ Community post. 9/28/10 for opinions about this proposal.
- Click to access "Public Arbitrator Pilot Program Frequently Asked Questions," FINRA.