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Industry Respondents Win Two Stunning FINRA Customer Arbitrations

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Apr 8, 2010 12:42 pm










Bill Singer's Comment:  The overwhelming majority of customer complaints are made in good faith and allege legitimate grievances.  Like it or not, public customers lose money and often blame their stockbroker or brokerage firms when their investments don't pan out.  Is that unfair?  Frankly, I believe that Wall Street invited those lawsuits by marketing itself as this warm, touchy-feely, family friend who is always looking out for the client's best interest (and will even give the toast at your daughter's wedding or cheer you son at his soccer game) and has this amazing staff of analysts who only pick winners.  If that's not Wall Street's image, then I invite you to tape the industry's television commercials and tell me what message is being sent to the public. 


 Notwithstanding the questionable nature of Wall Street's marketing, brokerage firms are not insurance companies that guarantee against losses -- and if you hear that promise from your broker, close out your account.  It's all guesswork, at best -- maybe educated guesswork, but it's not exactly black-and-white science.  You look at the industry's stockpicking track record for the past decade and tell me if that truth is trumpeted in any of the televised commercials.


In Smith, we see a case where two individual respondents were named despite having had nothing to do with the customer's account, and one of the respondents was not even employed at the firm during the relevant time.  While the Panel dismissed the claims and ordered the expungement of the allegations, that just doesn't strike me as enough.  What more was needed to support the imposition of a monetary award against the Claimant?  Are there no consequences for a Claimant found by a Panel to have alleged "clearly erroneous and factually impossible" charges? 


In Neves we see the troubling side of mandatory FINRA arbitration.  A customer acts in bad faith, conceals material evidence, fails to produce material documents, and make statements about his case that are not credible.  While in hindsight this multi-million dollar case may seem laughable, I can assure you that if you or your company were on the receiving end of such a Complaint that it would not be funny -- not in terms of the lost time, the dollars you spent to defend, and the emotional stress that such matters cause. 


I applaud the Neves Panel for not only dismissing the claims but in imposing some meaningful sanction in the form of $50,000 upon a Claimant who filed his case in bad faith.  Whatever the wrongs of Wall Street, and I am no apologist for that misconduct -- the fraud upon the American public by the industry has been considerable -- a mandatory arbitration forum must be more than merely open season upon the member firms and registered persons who are routinely named as respondents.  This case restores some integrity to the arbitration process.  That's always a good thing.




Apr 8, 2010 1:55 pm

I always enjoy reading your articles.  It reminds me to dot my i's and cross my t's and know that even when I do that, at some point in the future, I'm probably going to be sitting across the desk from an upset client and his attorney. 

With that said, please try to not paint us all with the very broad brush that you seem to have chosen for your last paragraph.  "The fraud upon the American public by the industry has been considerable" strikes me as a bit inflammatory.  Makes it sound like you are placing yourself in the blame Wall Street for all of the woes of our economy and stock market over the last few years crowd.  While there can legitimately be some fingers pointed at some of the investment vehicles that were manufactured, the vast majority of us had very little, if anything, to do with them.  Many of the folks crying foul right now over what happened to the stock markets need to do a little soul searching, perhaps while sitting on the deck of their now upside down house that they can no longer afford, and see that while  Wall Street creates and markets said investment vehicles, we don't use our own money to buy them.  While they're pointing fingers, and dragging us into arbitration, they need to examine themselves and see if they are victims or accomplices.