Analysis: Data triggers questions about alleged Wall St. legal bias

Wed Jan 8, 2014 10:22am EST
 
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By Suzanne Barlyn

(Reuters) - New figures about a watershed change to Wall Street's securities arbitration system are raising questions about a widely-held belief among consumer lawyers that arbitrators with ties to the industry can have bias against investors.

The figures, published this week by the securities industry-funded watchdog, showed investors in 2013 were as likely to win cases against brokerages when a Wall Street affiliated arbitrator hearing the case, as they were when arbitrators had no industry ties.

The Financial Industry Regulatory Authority (FINRA), which published the statistics, also runs the arbitration forum where investors must resolve legal disputes against brokerage firms.

Investors agree to the requirement when signing documents to open their brokerage accounts.

A FINRA rule change in 2011 eliminated a controversial requirement that one of the three arbitrators who hears investors' claims involving $100,000 or more must have securities industry affiliations.

That can mean anything from currently working in the industry to being an outside lawyer who advises the industry.

Investors can now choose between a panel that includes an arbitrator with industry ties or one composed of three "public arbitrators," who do not have industry affiliations but may have previously worked in the securities industry.

The 2013 data, compiled through last November, showed panels composed of three public arbitrators ordered brokerages to pay investors damages in 43 percent of cases that ended with a ruling.   Continued...

 
A trader works on the floor of the New York Stock Exchange during the opening bell in New York, November 27, 2013. REUTERS/Carlo Allegri