Blog by Bill Singer WEEK IN REVIEW

November 21, 2015

As my documented history of commentary discloses, I am no fan of mandatory arbitration -- be that the kind which is foisted upon public customers or upon industry participants. Hopefully, the growing swell of antagonism to Wall Street's brand of alternative-dispute-resolution will one day eradicate the industry's version of arbitration. To be clear, I am NOT an opponent of arbitration. During my career on Wall Street, I have served as a member of arbitration panels and as Chair of same; also, I have argued arbitration cases on behalf of claimants and respondents, and as legal counsel to industry members and pubic customers. When arbitrations are fairly administered, they offer a bona fide alternative to resolving disputes that may provide a fairer airing of grievances than courts. Notwithstanding, I detest the so-called "alternative" that is fostered by denying public customers the ability to open brokerage accounts without "agreeing" to be bound by the arbitration rules of an industry-sponsored arbitration forum. Similarly, I will continue to wage the battle on behalf of Wall Street's men and women who are compelled to litigate their intra-industry disputes before an arbitration forum that is effectively funded by employer/member firms, who also have the sole franchise to approve the rules of the arbitration forum.

Beyond all my disagreements with Wall Street's brand of arbitration, I have long complained about the lack of quality control attendant to the release of FINRA Arbitration Decisions. As I see it, if you're going to force customers and industry participants into an industry mandated and sponsored arbitration forum, you have to ensure that the published and public Decisions emanating from those cases offer meaningful explanations about what was disputed and the rationale by which the arbitration was decided. Sometimes the lapse in "content and context" are the fault of the arbitrators drafting a given Decision; but, more often than not, such shortfalls seem fostered by a lack of quality control. Ultimately, you just don't get the sense that someone at FINRA is reading (and proofreading) the arbitration forum's Decisions before they are being publicly posted.

No . . . I am not suggesting that arbitrators should be subjected to any pressure or second-guessing by anyone engaged in quality control; what I am suggesting is that there be minimally enforced standards as to content that should be included in Decisions in order to make the document intelligible. Similarly, I am suggesting that arbitrators be required to provide their rationale for reaching whatever outcome they did.  After reading a FINRA Arbitration Decision, I don't think it is asking too much to come away with an understanding of who sued whom, what were the allegations and defenses, how did the Panel rule, and what was the rationale for the findings and awards.  Consider this recent FINRA customer arbitration.

Short Trader's $106,000 GoFundMe Plea After Getting Clobbered By KBIO

After having lost his Senate election bid to Stephen Douglas, Abraham Lincoln was asked how he felt, to which he replied that he was "too old to cry but it hurt too much to laugh." All of which reminds me of an ongoing situation on a page. By way of brief background, KaloBios Pharmaceuticals, Inc. (symbol "KBIO") closed yesterday (November 18th) at $2.07 per share. That price wasn't  unexpected because KBIO had only recently announced in a press release on November 13, 2015 "that it will wind down its operations and that it has engaged the Brenner Group to lead those efforts." See, "KaloBios to Wind Down Operations / Engages The Brenner Group to Manage Wind Down" (PR Newswire, November 13, 2015, 4:40 PM). 

Ahhh, but Wall Street isn't always about what things look like or how the expected goes as expected. READ

We like to believe that we're safer when dealing with larger organizations. We also like to belief that folks who are more intelligent than us use big words that we don't necessarily understand. Perhaps relying upon those beliefs,  Wall Street has got the bigger-is-better and if-you-don't-understand-our-explanations-trust-us strategies down to a science.  In a recent federal securities settlement, we are confronted by a multi-billion dollar investment advisor that used a subadviser to manage some mutual funds. Enmeshed in all those big bucks and layers of management was a "sector rotation strategy" based on that ever-popular but somewhat obtuse term: algorithm.

If you were one of the unlucky investors whose mutual fund was involved in using the sector rotation strategy, your head may have spun in response to the explanation of that approach but it doesn't appear that your investment necessarily increased in value. Turns out that a lot of the purported back-testing and the historical data used to present the success of the strategy was a tad inflated and more than a bit unreliable. All of which made for some angry investors, which may have prompted queries from regulators, which, perhaps, disclosed that Virtus, the funds' manager, had not exactly done its best to confirm the representations and practices of the subadviser. READ

We can debate the point endlessly: Whether customer information is or should be the property of the servicing stockbroker or of the brokerage firm -- and someone, perhaps a dim voice in the background, might even argue that the information is the customer's. Frankly, it's an old battle waged with merit on all sides. Lost in the smoke on that particular battlefield, however, is the simple fact that Wall Street is subject to many laws, rules, and regulations about what customer information may and may not be taken when a stockbroker switches employers. Some departing employees think they're clever and found a way around the industry's restrictions. Some regulators would beg to differ. Consider this recent FINRA regulatory settlement.READ

CASE IN POINT Video Interview With Host BILL SINGER And Guest Brittany Weiner, Esq.

November 17, 2015: Veteran industry attorney and Blog publisher Bill Singer talks with Brittany Weiner, attorney with Imbesi Law PC, about former Wells Fargo broker Donna Sabb, and a family feud that spilled over into FINRA arbitration. Sabb was sued by her nieces and a nephew over "misappropriation" in accounts that Sabb established and funded. Presently, Weiner is seeking an expungement of the complaint from her records. WATCH

READ: Stockbroker Exonerated After Nephews And Niece Accuse Her Of UTMA Fraud ( Blog, September 11, 2015)

Yeah, I know, Wall Street is a very sophisticated place. You got your MBAs. Your certified planning so-and-sos. You got stockbrokers and analysts and all sorts of know-it-alls. They see the future. They predict what's gonna happen. All you got is the cash in your pocket. They want that too. So . . . step right up, sucka, and put your money on the table and pick the shell with the pea. In today's Blog, that pea is a golden opportunity to purchase some amazin' unsecured notes from a tax planner looking to help out a lot of clueless retirees.  READ