the Financial Sector Regulatory AuthorityThe arbitration forum is currently under intense scrutiny following a court ruling that Wells Fargo Advisors and his attorney “manipulated” the arbitrator selection process.
On February 1, the Public Investors Advocate Bar Association called for an investigation into Finra’s arbitration process after the judge Belinda Edwards of Fulton County Superior Court in the state of Georgia ruled in January that Wells Fargo Advisors was able to influence the selection of arbitrators appointed by industry self-regulation.
On February 9, Senator. Elizabeth WarrenD-Mass., and Rep. Katie PorterD-Calif., asked Finra to provide details on its arbitration process.
On February 21, Finra said it had hired a law firm Lowenstein Sandler conduct an independent review of its arbitrator selection process.
On February 23, Wells Fargo Advisors appealed Judge Edwards’ decision.
Last year, only 15% of cases brought before the Finra arbitration forum were decided by arbitrators, according to information from the self-regulation. The vast majority of cases end in settlements, either directly between the parties or through mediation.
Still, refereeing decisions are binding, so the selection process – and the qualification of referees – deserves attention.
“There are two schools of thought on who should sit as a referee. One school of thought wants them to be really experienced, have a background in securities, that sort of thing. Another school of thought is that they should be more like a jury. Securities Arbitration Clinic at St. John’s University School of Law
“There are two schools of thought on who should sit as referees,” said Christine LazareProfessor of Clinical Legal Education and Director of the Securities Arbitration Clinic at St. John’s University Law School. “One school of thought is that they should be really experienced, have a background in securities, that sort of thing. Another school of thought is that they should be more like a jury.
This can vary depending on the type of case, according to Lazaro. For business-to-business disputes involving highly technical details, someone with industry experience may be desirable, while clients may prefer lay arbitrators.
Arbitrator selection process
The arbitrator selection process is designed to allow flexibility in this regard.
For claims over $100,000 – which are decided by three arbitrators – parties have a choice of three lists of potential arbitrators.
The lists include a “chaired by the president” list of public arbitrators who have already undergone arbitration, a “public” list of arbitrators with no experience in financial services, and a “non-public” list or “of the industry” of arbitrators who have worked in financial services, according to information from Finra.
The list qualified by the president has 10 names and the parties obtain four strikes each. The public list has 15 names and each party is authorized to strike out up to six. The industry list also has 10 names, but there is no limit to the number of names that can be hit.
The parties then rank their remaining choices and the lists are compared to determine the arbitrators.
The ability to strike all names from the industry list means that disputing parties can choose to have their case heard only by people without a professional background in finance.
Claims up to $100,000 are decided by a single arbitrator. The parties will receive a list of 10 qualified public arbitrators. Each separately represented party may remove up to four arbitrators from the list. After exercising their strikes, each separately represented party will rank all remaining arbitrators in order of preference, a “1” indicating the party’s first choice, a “2” indicating the party’s second choice, and so on. Finra’s Director of Dispute Resolution Services will then combine the parties’ ranked lists to appoint the qualified public arbitrator based on the parties’ ranking.
A variety of backgrounds
According to Finra’s website, it “seeks to expand the depth and diversity of our roster of arbitrators by recruiting candidates from diverse cultural backgrounds and areas of professional expertise, such as business, accounting, finance, library science, liberal arts, law, and more.”
Finra wants to diversify its roster of arbitrators “by recruiting candidates from diverse cultural backgrounds and areas of professional expertise, such as business, accounting, finance, library science, liberal arts, law and more. again”.Financial Sector Regulatory Authority
For those concerned that underqualified candidates are forcing their way into the arbitration pool, it should be noted that there are certain minimum requirements, according to Finra.
Prospective arbitrators must have a minimum of five years of professional experience and two years of college credits.
Finra also offers free training on its rules and procedures, as well as more general training in leadership, communication and management.
Avoiding Industry Insiders Could Benefit Arbitration Clients Bill Singerseasoned securities lawyer and editor of the BrokeAndBroker.com blog.
As an example, he describes a scenario where inexperienced clients believe they have been defrauded by their broker.
“Why should an arbitrator have specialized training to sit on a Finra Arbitration Panel? … If it was me, I would take on an old fashioned jury of my peers any day.BrokeAndBroker.com
“When you discuss these facts in front of the unwashed arbitration pool, you are more likely to have people who relate better to your dilemma. On the other hand, if you discuss the same case with an individual with an MBA in finance, a former loan officer and a former CPA, these people cannot relate to the same visceral level because they do not have the same naivety than fraudsters. investor,” he said.
“Why should an arbitrator have specialized training to sit on a Finra arbitration panel?” asked the singer. “For starters, consider that there is no background test imposed on jurors in our court system. When a breach of contract case comes before a jury, we do not require jurors to have a training in finance or investing.And, likewise, when a criminal case comes before a jury, we do not limit the panel to those with criminal justice service or law degrees.
“If it was me,” he said, “I’d take an old-fashioned jury of my peers any day.”
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