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FINRA Arbitration Process Under Fire

The securities industry watchdog, FINRA (Financial Industry Regulatory Authority), has come under fire again recently, this time for failing to review its roster of potential arbitrators. According to an article in Bloomberg Businessweek, in a 2013 case set in Wichita, KS, two of the arbitrators offered by FINRA to adjudicate the proceedings and make a ruling happened to be...dead. One of the arbitrators had been deceased for 18 months. This news arrived just a few weeks after FINRA dismissed an arbitrator who had allegedly lied about his legal background. Unfortunately, before his dismissal, this individual actually arbitrated around 30 FINRA cases.

Many investors remain unaware that the vast majority of brokerage firms in the United States require them to sign binding arbitration agreements when initially opening their brokerage accounts. These agreements often pass without notice among the stack of other opening documents that financial advisors may ask customers to sign and/or initial. Not only that, but optimistic customers who do pick up on the arbitration agreement generally will not expect the worse. But when the worst does happen, what are customers really up against...?

For one thing, investors should know that unlike the judges and juries in our judicial system, FINRA’s arbitrators are drawn a pool of around 7,000 retired stock brokers, bankers, branch managers, and attorneys. For the most part, these arbitrators come from the plaintiff or “respondent” side of litigation. Accordingly, FINRA has not been immune to accusations of a strong industry bias in its arbitrators and their rulings. In fact, iit would be surprising if there weren’t a bias: the process was created by the industry and is run by the industry. Perhaps more troubling however is the suggestion, due to the recent developments mentioned above, that the arbitrators, who ultimately decide the outcome of securities litigation, including monetary awards, are not being reviewed and evaluated to ensure they are capable of doing their well-paid job.

If you or anyone you know has been the victim of investment fraud or broker misconduct, please contact us immediately at 1-866-462-3330 or via email by clicking here.

O Canada... Broker Misconduct Crosses the Border

Human nature transcends national boundaries. At least, that’s what a recent and very disturbing investigative report suggests about financial advisors in our genial neighbor to the north, Canada. While Canada may not have anywhere near the United States’ problems with violent crime or even crime in general, it appears to be equally burdened by financial fraud and broker misconduct.

The CBC or Canadian Broadcasting Corporation is the country’s oldest and most venerable broadcasting network. And its Marketplace division covers the financial markets for the network. Given that about a third of all Canadians use investment advisors to manage their money, CBC’s Marketplace reporters thought it would be interesting to find out just what kind of advice these advisors were dispensing to ordinary folks like us. So they sent journalists posing as customers into five large banks and five popular and investment firms wearing a hidden camera.

Well, guess what…?

The hidden camera revealed that the advice these so-called “advisors” were giving was nothing short of “atrocious.” For more, check out the entire mind-boggling, stomach-turning piece here.

If you think it’s just a Canada thing, think again. As the media and FINRA’s own monthly disciplinary action reports suggest, negligent investment advice, broker misconduct, and outright fraud and theft are closer to the rule than the exception in our great country. And while regulators at the SEC and FINRA are working hard to fight and rectify all forms of misconduct, the best means of prevention still lies with the individual investor: us. Check out the CBC’s helpful tips on how to check out your broker, and then check out our own tips for financial self-defense here.

If you or anyone you know has been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation at 1-855-462-3330 or via email by clicking here.