FINRA Pilot Program Offers Up All-Public Arbitration Panel to Hear Investor Claims

Citigroup Global, Merrill Lynch, Wachovia Securities, UBS, Charles Schwab, and Morgan Stanley have volunteered to participate in a Financial Industry Regulatory Authority pilot program that would allow investors to have their cases heard by a panel consisting of three public arbitrators. Currently, investors have the option of having their cases dealt with by a panel made up of two public arbitrators and one non-public arbitrator.

Investors that choose to participate in the pilot plan and the firm they have filed a claim against will be given the same three arbitrator lists that those involved in regular arbitration proceedings would receive. The parties can strike the same number of names from the lists and rank according to preference the names of arbitrators they are willing to have on the panel. Parties participating in the pilot can cross out the names of all non-public arbitrators.

Except for Charles Schwab, all of the firms will submit 40 arbitration cases annually for the duration of the two-year program. Schwab will refer 10. However, the decision of whether to avail of this new panel model will be left to the investor. The pilot is available for eligible claims filed after October 6.

The program’s results will be assessed, including who decides to participate in the pilot, who decides to avail of an all-public panel, the duration of the hearings, and the outcomes of both pilot and non-pilot claims. FINRA CEO Mary Shapiro says the pilot “better serves and protects the interests” of investors.

“This is really a political move,” says Securities Arbitration attorney WIlliam Shepherd. “An outcry from consumer advocates has resulted in a bill Congress to make ‘pre-dispute arbitration’ clauses in consumer contracts un-enforceable. Some lawmakers want investors to be included as consumers protected by the bill.

“Wall Street brokerage firms are lobbying hard to exempt themselves from this mandatory arbitration ban,” adds Shepherd. “Despite its name, FINRA is the former National Association of Securities Dealers, a non-profit corporation owned by brokerage firms. FINRA is attempting to show Congress it is willing to reform securities arbitration rather than end it. Doing away with the ‘industry arbitrator’ is one of the so-called reforms it is proposing.”

Related Web Resources:

Test Lets Investors Pick Form of Arbitration Panel, The Wall Street Journal, July 25, 2008
FINRA to Launch Pilot Program to Evaluate All-Public Arbitration Panels,, July 24, 2008

The stockbroker fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP has filed investor claims for our clients against hundreds of financial firms. We have helped thousands of investors recoup their losses.

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