Securities Fraud Lawyer Blog
As a Texas securities attorney I have been involved in the securities industry over much of the last three decades, and it seems the debate over the fairness of mandatory arbitration before FINRA between customers and firms or brokers has been heated, and near constant. Periods of greater scrutiny seem to only coincide with any rule proposal or legislation which has the potential of tilting the playing field in one direction or the other. During this debate, FINRA statistics seem to used by both sides (the consumer advocates and the industry) to support their respective arguments, but do these statistics tell us anything about “fairness.”
For those that may not have had the pleasure of engaging in this titillating debate, it may be generally summed up as follows: “Is FINRA Arbitration Fair, And Does It Offer Any Compelling Advantage to Either the Industry or the Public Customer?” It is not surprising that each constituency group argues zealously they are “right” in their analysis of fairness, or the lack thereof. However, and more interestingly, these constituencies can sometimes be found to argue “Yes” before some audiences, and “No” before others, perhaps suggesting a more candid insight while their respective guard is down, if not some resignation, about the current process and maybe a “kiss your sister” type of fairness.
Some background may be helpful for those not familiar with the origins of the debate. In 1987 the United States Supreme Court decided in the Shearson v. McMahon case that brokerage firms can contractually mandate arbitration for claims brought by their customers, thus forcing citizens to give up their right to the court system and a jury. It was heralded as a fair trade-off given the so-called fairness, efficiency, and economy of arbitration versus the court system. Since then, the debate continues: Is FINRA arbitration fair, and does it still offer compelling reasons to waive a right to a jury trial? Pragmatically speaking, the answer may not matter because it is likely, if not certain, that the customer agreement used by every brokerage firm contains a provision requiring mandatory arbitration before FINRA, and change to the status quo will only come, if at all, from the legislative and rule making process, or perhaps from a new decision from the Supreme Court, but don’t hold your breath.