finra arbitration process

An Injustice Lurks within the Justice System

How often do you read the fine print? Or, ok, let's make the question more concrete... Have you read our site disclaimer? It sits at the very bottom of the page there, down in the footer, in a font that's a little smaller than our body text font so as not to annoy people, and it definitely qualifies as a kind of fine print. It's ok if you've never read it. It's not like we're asking you to sign away your rights based on what's in the disclaimer or anything--we're not your brokerage company or financial adviser. Because that's basically what they do. We'll come to the point: it's just as unlikely for you to read The Green Firm site disclaimer as it is for you to read the fine print in the agreement you signed with your brokerage or financial adviser that gets you to waive your right to file a claim against them in court or to participate in a class-action lawsuit. Don't know what we're talking about? Well... Chances are you already signed the agreement without even realizing what you were giving away. And that's exactly what the brokerages count on.

Fortunately, there's been a push recently by some politicians along with an influential member of the SEC to onsider adopting new rules that would prevent or restrict brokerages from forcing customers to sign away their right to sue. As things stand, if your broker loses all your money through chicanery or negligence and you want to sue him or her and their supervising brokerage firm, you will have to take your case before an arbitration panel administered by the Financial Industry Regulatory Authority, or FINRA. No trial, no jury--just you, attorneys, and an arbitration panel. Now, brokerages like to argue (as credit card companies do as well) that binding customers to arbitration reduces legal costs and help with frivolous litigation. Well, fine, that's bully for them! But from where we sit--and it seems like more and more people are starting to agree with us--this arrangement doesn't just favor the interests of the big brokerages and advisers, it's unjust and, dare we say it, borderline UnAmerican. 



Yeah, ok, we should all read the fine print. But realistically, as we demonstrated above, most people don't. This puts customers in the awful position of being fleeced not once but twice: first, when the brokerage gets them to sign away their right to sue or join a class-action suit; and then again when their advisers through negligence or misconduct lose the customer's hard-earned cash. 

Rogue Broker Runs Wild

A recent article on alleged con man Karl Hahn caught our eye for two key reasons. First, it's yet another cautionary tale of a friend swindling another friend out of a whole lot of money. We saw this not long ago in the case of major league pitcher, Barry Zito. In this particular case, the victim was a Silicon Valley legend named Chase Bailey, formerly a chief scientist for Cisco Systems, serial startup entrepreneur, actor and filmmaker. Bailey and Hahn became friends while Hahn, a former financial adviser, was working for Deutsche Bank. Hahn began the alleged con by selling Bailey very expensive life insurance policies, then proceeded to fleece Bailey out of millions of dollars through a series of what appear to be completely false and fraudulent coastal real estate deals. Some friend. Unfortunately, by the time Bailey caught on to Hahn, the alleged con man had already filed for bankruptcy, making it extremely unlikely Bailey and his legal team will be able to recover the $10.5M judgment from Hahn personally (in a colorful wrinkle, Hahn now finds himself working at Home Depot). However, and this is the second key reason we wanted to share this article:

"Also linked to the case are three of Hahn's former employers: Merrill Lynch, Deutsche Bank and Oppenheimer. All denied "vicarious liability" for, and negligent supervision of Hahn, but according to FINRA records, they all reached unspecified settlements before a FINRA hearing commenced."

As this quote indicates, in cases where it may prove difficult to recover from a rogue broker like Hahn, we at The Green Firm have found that through extensive investigation, we are often able to expose the broker's employers by showing that they knew or should have known about this type of gross misconduct and yet they did nothing to protect their clients.  

If you or someone you know has the been the victim of investment fraud or broker misconduct, please contact us immediately to discuss your legal rights.

Know Your Enemy

As a recent article in US News & World Report reminded us, investors trying to win back their money after they've been the victimized by investment advisor misconduct are, well, kind of in a rigged game. That's because, whether they know it or not, when investors open an account with a brokerage firm, they most likely are required to sign a mandatory arbitration clause that causes them to waive their constitutional right to a jury trial, and binds them to FINRA's arbitration process instead. As the article's author notes, "So far, efforts to abolish this requirement—which is inherently unfair to investors—have been unavailing. The securities industry is a powerful lobby. The last thing they want is a forum where claims against its members will be judged fairly and impartially."

These mandatory arbitration clauses present a large hurdle for individuals who have been victims of broker misconduct, since arbitrators oftentimes rule in favor of the financial industry and deny the claims of victims entirely.  In fact, according to the statistics of FINRA's own website, "Results of Customer Claimant Arbitration Award Cases," over the past 5 years in cases decided by arbitrators, less than 50% saw monetary compensation awarded to Claimants (see table inset.)


nother important point is that investors who need to consult an attorney for a dispute with their financial adviser must be sure to ask any prospective attorney if he or she has experience representing customers in the FINRA arbitration process. The FINRA arbitration process contains many nuances that are unique to itself and not present in a typical commercial litigation lawsuit filed with the court.

Finally, nd in light of the award statistics cited above, it would be doubly wise to retain an attorney who has actually won a FINRA arbitration on behalf of an individual in the past. An attorney with a successful FINRA track record can not only more accurately evaluate the likelihood of winning an award, but he or she will possess the experience to know what it takes to win an award at a final hearing within this complex, opaque, and  suspect system that FINRA operates and the securities industry must be grateful for.

If you or anyone you know has been a victim of securities fraud or broker misconduct, please contact us for a free consultation.