The securities industry has adopted mandatory arbitration as
the de facto method of resolving
disputes against broker-dealers and their registered representatives. Brokerage firm account agreements universally
require clients to waive their rights to file lawsuits in court and instead
arbitrate their claims before the Dispute Resolution division of the Financial
Industry Regulatory Authority (“FINRA”).
While recent improvements to FINRA procedures have made the
arbitration process more even-handed than it historically had been, investors
are still required to forego a variety of benefits of litigating in court that
are unavailable in arbitration.
Although arbitration is appropriate for some investors’ disputes, its limitations
on discovery and testimony of witnesses not subject to FINRA’s jurisdiction can
significantly hinder an investor’s ability to prove a respondent’s liability.
Recently, Senator Al Franken (D-MN) and Representative Hank
Johnson (D-GA) introduced bills in the U.S. Senate and the U.S. House of
Representatives, respectively, seeking passage of the Arbitration Fairness
Act. The proposed law would eliminate
mandatory arbitration in consumer contracts, and instead make the alternative
dispute resolution forum available to investors and other consumers as an
optional alternative to filing a lawsuit.
While the bills face a long and challenging process to becoming law,
their introduction reflects recent efforts to expand the rights of investors to
litigate disputes in a fair and efficient manner. In fact, the more fair FINRA’s dispute
resolution procedures become, the more likely that investors would opt for arbitration
even if given the choice of going to court.
Investors who have disputes against their financial advisers should contact the securities litigation attorneys at Block & Landsman for a confidential and free consultation.
