Most retail investors have never heard of FINRA, or the Financial Industry Regulatory Authority, until they’ve lost a lot of money due to broker misconduct or investment fraud. The first time they are likely to learn about the financial industry’s watchdog is when they attempt to sue their broker in a court of law and find that they can’t.
Financial Industry Regulatory Authority's October 2016 disciplinary action report for the financial industry and brokers.
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.