PIABA Wants Live FINRA Arbitrations And Wants It Now

April 28, 2021

Over the course of the last couple of days, the Public Investors Advocate Bar Association ("PIABA") has expressed its ire about FINRA's ongoing postponement of in-person arbitration hearings:



As set forth in part in the PIABA Press Release:

The letter to FINRA Executive Vice President Richard Berry objects in strong terms to FINRA's decision to further extend the nationwide postponement of in-person hearings for all 69 of FINRA's hearing locations. Meyer points out that trial courts around the country and two major private arbitration forums resumed face-to-face proceedings some time ago or are doing so now. "PIABA conducted an analysis of the 20 largest FINRA hearing locations (by population) to learn whether courts in those jurisdictions were holding in-person civil jury trials. The results are overwhelming -- every single jurisdiction either is currently conducting in-person trials or will be doing so by July."

Meyer also points out that the single health consultant FINRA is using to justify its shutdown has not provided any public report or metrics for the decision.

But the biggest problem with the FINRA arbitration shutdown is that it unfairly benefits brokers and firms on the other side of the cases and prevents injured investors from seeking justice.  The PIABA letter states: " . . . the indefinite delay in FINRA in-person hearings benefits the FINRA-member brokers and brokerage firms defending the arbitration claims brought by their customers in this forum." 

I feel PIABA's pain and understand where its complaint is coming from. As an advocacy organization, it has every right to protect the interests of the public customers that its various members represent. Clearly, delays in adjudicating customer disputes impose unique disadvantages upon such claimants, particularly when then have been the victims of fraud and are elderly or disabled. Although delays also disadvantage industry respondents, the impact tends to be somewhat disproportionate as the PIABA release and letter accurately note.

As the COVID pandemic manifested itself, and, in response, when FINRA attempted to force industry respondents to submit to videoconferencing during regulatory investigations and hearings, I voiced my opposition in September 2020 (some seven months ago) -- in part, I argued that:

Among the more infuriating aspects of FINRA's proposal is that those who FINRA has charged (and intends to charge) with misconduct are NOT responsible for the postponement of OHO/NAC hearings since March 16, 2020. COVID and only COVID has prompted the postponements. It is that horrific pandemic that has produced over 6 million cases with over 190,000 deaths in the United States. It is COVID that fosters FINRA's assertion that the "expanding backlog of cases, which if left unchecked, will compromise FINRA's ability to provide timely adjudicatory processes and fulfill its statutory obligations to protect investors and maintain fair and orderly markets." Yes, FINRA has a backlog of cases. And many restaurants are still unable to open. And movie theaters are still shuttered. And many folks cannot get into their offices. And many business have failed. And more men and women will die from the COVID. And . . . well, you know, we're all sort of dealing with this pandemic as best we can.

We are asked to accept as an act of faith that "FINRA's protocol for conducting hearings by video conference will ensure that such hearings maintain fair process for the parties," and that FINRA will use a "high quality, secure and user-friendly video conferencing service." Clearly, FINRA doesn't get it. The issue of fair hearings is not one of bandwidth -- it is about due process and the right of confrontation at a self-regulatory-organization that has long proclaimed it is not subject to constitutional due process. Moreover, the mere fact that FINRA's proposal acknowledges that there will be a need to "provide thorough instructions, training and technical support to all hearing participants," clearly underscores that there are unique and additional considerations imposed upon already vulnerable respondents that require them to learn how to defend themselves through a newfangled conferencing system. 
. . .

I am not an idiot and I am not oblivious to the consequences of FINRA's stalled docket. I represent defrauded investors. Also, I represent industry respondents who seek to clear their names or argue for reduced sanctions. Without question, FINRA has a mission and, at times, the public suffers when miscreants are allowed to ply their frauds until such time as a prosecutor or regulator can schedule a trial and obtain a verdict. I am not blind to that danger. On the other hand, the deck has been stacked for too long in favor of FINRA staff, and at some point a line must be drawn and traditional notions of fair play must matter.

from "FINRA Proposes OHO And NAC Hearings Via ZOOM" (BrokeAndBroker.com Blog /  September 3, 2020) at http://www.brokeandbroker.com/5413/finra-covid-zoom/

The re-opening process of business and the courts around the country has not been uniform -- some jurisdictions opened too soon with dire results, and others remain tethered to video/teleconferences. Hopefully, we are nearing the time when life and business will return to something close to normal or at least a reasonable simulacrum. In my practice, where I represent public customers, industry participants, and whistleblowers, many folks remain scared about entering courtrooms or hearing rooms. It's a similar problem for jurists, jurors, court staff, and witnesses. They fear taking public transport. They fear being sequestered in small rooms with other folks. 

As we discuss and debate in the public forum about how best to re-open regulatory and arbitration hearings, let's at least agree that FINRA did not propagate COVID and should not be blamed for attempting to reasonably respond to this pandemic; however, critics such as PIABA and I have every right to complain about those very attempts. Perhaps a more active and involved FINRA Board of Governors might have promulgated better, fairer policies, but, as I have often lamented, we are saddled with a Board that has not risen to the occasion and prefers to remain disengaged. 

I believe that public customers should have the right to litigate against Wall Street per their choice, whether that be in court or in an arbitration forum. Long ago, FINRA should have promulgated a rule prohibiting any mandatory arbitration: public customer or industry employee. Further, there should not be any arbitration conducted in any forum run by FINRA, which is an organization populated solely by "members" that are industry firms. As presently constructed, I find FINRA to be little more than a trade organization on steroids, and one that is conflicted and often favors the interests of the industry's large financial services firms to the detriment of the industry's men and women and its customers. For over three decades I have espoused that view (it's online -- look it up) , and often chastised the Public Investors ARBITRATION Bar Association (as PIABA was formerly known) for not manning the frontlines in demanding the end to mandatory FINRA arbitration. Now that PIABA's first "A" has been revised from Arbitration to Advocate, I hope that the organization's bias favoring arbitration has been similarly altered. 

There is a time and place for arbitration, and if it is fairly sited, it should be in a forum that is free of the control (direct or indirect) of the very industry that mandates the alternative dispute resolution in its own hearing rooms. There is nothing ambivalent in my views about FINRA arbitration. I have chaired FINRA and American Arbitration Association panels -- I have represented clients in arbitration as well. Arbitration, when it works, is an excellent alternative to the court system. On the other hand, compromised arbitration is an abomination. Similarly, if the merits of arbitration are so compelling, then that attribute should be enough to attract litigants, and there should be no need to impose a mandatory routing of disputes into such a pathway. I have long wished that PIABA joined with me and others in demanding an end to resort to FINRA as an arbitration forum. We should demand a fully independent forum free from industry control or the appearance of same. Perhaps now, as the organization's acronym deleted "arbitration" in favor of "advocate," PIABA will more forcefully argue against mandatory arbitration and the use of FINRA's arbitration forum.

The PIABA Press Release asserts that "JAMS, the largest private provider of alternative dispute resolution services worldwide, has been holding in-person arbitrations with new safety procedures in 22 out of its 24 hearing locations since June 2020."  Seriously -- you're actually arguing that it made sense in June 2020 to conduct nationwide, in-person hearings? Were you just visiting planet Earth at the time? Do you still think that as early as June 2020, only months into an exploding pandemic, that our priority should have been to re-open the arbitration system for Wall Street disputes? I'm sorry but we're going to have to agree to disagree on those priorities. 

The PIABA Press Release should have acknowledged that as the "largest private provider" of ADR services that, you know, like maybe, JAMS had/has a profit incentive to re-open for in-person arbitration. Just throwing that out there. The fact that JAMS held hearings since June 2020 doesn't strike me as laudable or necessarily something for other ADRs to emulate. If JAMS pulled it off, that's great. Personally, there was no way in hell that I would have agreed to appear at a JAMS office for an arbitration during 2020 or most of 2021 (if not up to and including the present). Then again, I'm one of those idiots who observed social distancing, wore a mask, and got a vaccine. I understand that there are many Americans who didn't observe most if not all of those options -- frankly, it was those folks that I would not have wanted to be in an arbitration room with during most of the last 12 months. So, no, I don't applaud JAMS for opening its doors early, and I don't appreciate PIABA citing that organization's decision as a laudable landmark.

Given my professed distrust of FINRA arbitration, I find myself in the uncomfortable position of defending that very forum against the brunt of PIABA's April 26/27 complaints. COVID is the culprit here. The arbitration forum shutdown at FINRA is unfair to victimized public customers. I will not argue that point and it is validly espoused by PIABA. On the other hand, FINRA's shutdown was also unfair to the industry's victimized employees who are unable to get timely redress of their own employment-related claims against former employers, or are unable to clear their reputations in the face of what they may view as unprincipled customer complaints. Just as I chastise FINRA for issuing idiotic press releases that seem little more than self-aggrandizing or make-work, I see little value in PIABA's campaign to blame FINRA for the delays in conducting live arbitration hearings during a pandemic.