As the co-chair of the legislative committee for the Public Investors Arbitration Bar Association, I am excited about the initiatives we are pushing to help our dual mission of Protecting Investors and Recovering Losses. We anticipated having more than 100 meetings on Capitol Hill with both Senate and House offices to discuss the issues facing our clients, retail investors. Wall Street spends millions of dollars a year to influence Congress and get legislation passed that benefits the industry, it really makes me proud to see all of these great lawyers volunteering their time to show up in Washington DC and make sure that a voice for individual investors is heard by Congress as well.
The first issue, creating a fund for investors, is crucial for ensuring that the arbitration process is fulfilling its purpose, helping investors that have been harmed by the financial services industry recover their lost funds. A bipartisan bill was proposed last session of Congress in the Senate and we are pushing for a similar Bill to require FINRA to establish a relief fund to provide investors compensation for unpaid arbitration awards issued against brokerage firms or brokers from fines levied against brokerage firms.
Every brokerage firm’s client account agreement has an arbitration clause. Disputes between customers and brokerage go to mandatory arbitration sponsored by FINRA, an entity comprised of brokerage firms. FINRA’s statistics show that from 2013-2017 that almost 30% of all arbitration awards went unpaid, which amounted to $167 million in unpaid awards. These are investors who have lost their investments (often retirement funds), have followed the rules, filed a claim, had a panel of FINRA arbitrators determine they were wronged or defrauded, and yet were unable to collect or recover their funds. The funds exist, FINRA collected $525.5 million in fines from 2013-2017(see FINRA Statistics).
The second issue is ending mandatory arbitration. There is a bill introduced in both the Senate and the House to amend title 9 of the US Code with respect to mandatory arbitration for cases involving employment and certain consumer actions, including securities claims. The Bill effectively prohibits brokerage firms from continuing their universal practice of using forced arbitration agreements in contracts between themselves and investors to force claims into arbitration.
Investor’s claims allege a wide range of improper conduct including misrepresentations, improper execution of orders, unsuitable investment advice, failure to supervise and breach of fiduciary duty. The investors bringing these claims are also widely varied and include not only wealthy investors and institutions but also those of more modest means on fixed incomes. Many are elderly and retired and some unfortunate investors may have lost their entire savings which were accumulated over a lifetime of work.
This legislation will ensure that investors are free to exercise their right to seek resolution of their investment claims through arbitration, or through the judicial system. Wall Street has said for years that the best, most efficient and fairest system for investors to resolve claims is through arbitration conducted by its self-regulatory organization FINRA. Allowing investors the choice to seek resolution through the judicial system will provide competition to ensure that FINRA is indeed offering a superior forum for dispute resolution. My colleagues, Mark Sanders and Ken Baker also came with me to DC to help make sure that indivual investors interests are represented in Congress, not just the interests of Wall Street.
Sean M. Sweeney is a shareholder at Halling and Cayo, a full service law firm in Milwaukee, WI and the head of its Securities Litigation team.
He represents individual and institutional investors in FINRA arbitration and court nationwide. He recovers investment losses from fraud or breach of duty from their broker-dealer.