In a long-sought victory for investors, the Securities and Exchange Commission ("SEC") has approved a proposal by the Financial Industry Regulatory Authority ("FINRA") that arbitration panels, which decide investor claims of broker misconduct, no longer are required to include an arbitrator who is a member of the financial industry. For the first time since the U.S. Supreme Court allowed brokerage firms to require investors to arbitrate disputes, investors will have a choice of selecting an all-public arbitration panel.
For years, investors and their advocates have complained that the presence of an industry arbitrator on panels creates an unfair bias in favor of the industry members who are accused of wrongfully causing investment losses. Brokerage firms have long resisted any changes to the use of the industry, or non-public, arbitrators who, the firms claim, are better able to understand the standards that they are required to follow.
Although some disputes may be appropriate for selection of an industry arbitrator, investors will now be permitted to choose the the make-up of the arbitrators who will decide their cases.
As a result, the playing field is becoming even for investors who pursue arbitration claims for investment fraud.
