The Financial Industry Regulatory Authority ("FINRA"), which provides the arbitration mechanism for resolving securities disputes involving investment fraud, has published its 2010 arbitration statistics. The results show a gradual, very gradual, trend that may be favoring investors.
Investors filed 5,680 arbitration cases in 2010. Although this number is twenty percent less than the number of arbitration cases filed in 2009, it is the second largest annual figure in the past five years, representing a general increase in the number of investors who are claiming losses due to broker misconduct. The majority of cases filed in 2010 involved claims for breach of fiduciary duty and misrepresentations involving common stock and mutual funds, although a significant number of cases involved annuities and bonds as well.
2010 did not just usher in an increased number of new arbitrations. A large number of cases (6,241) were closed during that year as well, which is a result of the increased filings in 2009 following the near collapse of the financial markets in the Fall of 2008. These statistics follow a general pattern regarding an uptick of arbitration activity following major market downswings, although these figures did not quite reach the record number of cases filed on the heels of the tech bubble burst early in the decade.
Of the cases closed in 2010, 22% were resolved by hearing or decided just on the submission of documents, and 62% were settled through mediation or through direct discussions between the parties. This is fairly consistent with method of case resolution seen in prior years.
Notably, 47% of all customer cases decided by arbitration resulted in an award of damages in favor of the investor. This statistic requires a significant asterisk: it includes the award of any dollar amount in favor of the customer, regardless of how little it is compared to the amount of the claimed losses. Even with that qualification, the 2010 results confirm that the percentage of victories for investors is gradually trending upward; in 2007, only 37% of customer claims received an award in favor of the investor. Indications remain, however, that arbitration presents significant undue challenges to investors by failing to provide a level playing field.
Arbitration statistics over the next two years will shed light on the impact of important changes that FINRA is implementing to its arbitration procedures. Among the most significant changes is the elimination of the industry arbitrator for claims involving more than $100,000. Additional improvements, such as making arbitration voluntary rather than mandatory, are likely in the wake of SEC action pursuant to the requirements of the recently enacted Dodd-Frank Act. Whether such changes impact the results of arbitration hearing is a question that investors and industry members will closely watch.
If you believe your investment losses may have been caused by fraud or broker misconduct, call the investment fraud lawyers at Block & Landsman for a confidential consultation. Please visit our website for more information.
