Number of FINRA Arbitration Claims Rose in 2009 Following Market Crisis

According to FINRA dispute resolution president Linda Fienberg, the market turmoil of the last two years has led to an increase in the number of arbitration cases filed, as well as a change in the the kinds of claims that are submitted. Fienberg made her statements before the DC bar.

7,134 arbitration files were submitted last year-a definite increase from the 4,982 arbitration cases filed the year before and the 3,238 arbitration cases submitted in 2007. Fienberg said that the number of cases filed goes up when stock prices go down. For example, when the dotcom bubble burst, nearly 9,000 arbitration claims were submitted in 2003.

Fienberg told the group that in the wake of the auction-rate securities crisis, more large corporations filed claims over frozen assets last year. The last two years also saw an increase in claims over mutual funds, making this type of fund the most common security cited in arbitration cases.

Fienberg also reported that more claimants are prevailing-48% in 2009- compared to 42% in 2008 and that cases are being resolved in a shorter period of time-within 14 months last year compared to more than 15.5 months during each of the two years prior.

Commenting on Fienberg’s statements, Shepherd Smith Edwards and Kantas founder and stockbroker fraud lawyer Bill Shepherd said, “Securities class action claims are down because the law and the justice system has decimated them. All securities class actions can only be filed under federal (not state) securities laws, which are very unfriendly to investors. Judges that were recently appointed to the federal bench (at all levels) are pro-business and anti-lawsuit. Thus, if possible the majority of securities class action claims must be settled early or they risk dismissal before any money is recovered. This means that the attorney filing these cases loses their own money.”

“For these and other reasons,” Shepherd went on to say, “the average recovery in securities class action claims has fallen to less than seven cents per dollar lost. Put another way, crime does pay when that crime is securities fraud. Also, the largest securities class action firm was recently closed and several principals were put in jail (not uncommon for an enemy of Wall Street). Other firms have ceased filing such cases. One again, Wall Street wins and investors lose. This will only change when ordinary people realize that lawsuits are their only hope of leveling the playing field.”

Related Web Resources:
Crisis Caused Spike, Different Trends In Arbitration Cases, FINRA Official Says, BNA, January 11, 2010

Financial Industry Regulatory Authority

Contact Information