PIABA Wanted Live FINRA Arbitration (But Covid Had Other Plans)

August 19, 2021

About four months ago in April 2021, the Public Investors Advocate Bar Association ("PIABA") was angered by FINRA's decision to extend the ongoing postponement of in-person arbitrations. Apparently, PIABA believed that FINRA's shut-down of live arbitrations was unfairly benefitting industry interests to the detriment of victimized public investors. As a general proposition, PIABA had a point; however, as to acknowledging the horrors of Covid, PIABA came off as tone deaf and reckless. Let's revisit the April 28, 2021 BrokeAndBroker.co Blog that reported about this issue, and let's consider the update:

"PIABA Wants Live FINRA Arbitrations And Wants It Now"
(BrokeAndBroker.com Blog / 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. 

UPDATE August 19, 2021

For those of us who continue to grapple with additional waves of Covid since April 2021, PIABA's April 2021 demand to reopen FINRA arbitration forums for live hearings has become grotesquely insensitive. One only need to peruse recent headlines to get a sense of how far from full recovery we remain as a nation and a world: 



On April 7, 2021, FINRA submitted to the SEC a proposed rule change to extend from April 30, 2021, to August 31, 2021, the then operative expiration of the video-conferencing (in lieu of in-person) of certain Office of Hearing Officers and National Adjudicatory Council regulatory hearings. That extension was sought by the self-regulatory-organization at the same time as PIABA was pressing to re-open the organization's arbitration facilities for in-person arbitration. More recently, FINRA proposed to extend the expiration of the temporary amendments enabling various Covid-related regulatory procedures from the August 31, 2021, to December 31, 2021. Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Extend the Expiration Date of the Temporary Amendments set forth in SR-FINRA-2020-015 and SR-FINRA-2020-027 (SEC Release, Release No. 34-92685; File No. SR-FINRA-2021-019 / August 17, 2021) https://www.sec.gov/rules/sro/finra/2021/34-92685.pdf  As set forth in part in the SEC Release [Ed: footnotes omitted]:

In response to the COVID-19 global health crisis and the corresponding need to restrict in-person activities, FINRA filed proposed rule changes, SR-FINRA-2020-015 and SR-FINRA2020-027, which respectively provide temporary relief from some timing, method of service and other procedural requirements in FINRA rules and allow FINRA's Office of Hearing Officers ("OHO") and the National Adjudicatory Council ("NAC") to conduct hearings, on a temporary basis, by video conference, if warranted by the current COVID-19-related public health risks posed by an in-person hearing. In April 2021, FINRA filed a proposed rule change, SR-FINRA2021-006, to extend the expiration date of the temporary amendments in both SR-FINRA-2020- 015 and SR-FINRA-2020-027 from April 30, 2021, to August 31, 2021. 

While there are signs of improvement, much uncertainty remains for the coming months. The emergence of the Delta variant, dissimilar vaccination rates throughout the United States, and the uptick in transmissions in many locations indicate that COVID-19 remains an active and real public health concern. Based on its assessment of current COVID-19 conditions and the lack of a clear timeframe for a sustained and widespread abatement of COVID-19-related health concerns and corresponding restrictions, FINRA has determined that there is a continued need for temporary relief for several months beyond August 31, 2021. Accordingly, FINRA proposes to extend the expiration date of the temporary rule amendments in SR-FINRA-2020-015 and SRFINRA-2020-027 from August 31, 2021, to December 31, 2021.

. . .

[A]mong other things, the need for FINRA staff, with limited exceptions, to work remotely and restrict in-person activities - consistent with the recommendations of public health officials - have made it challenging to meet some procedural requirements and perform some functions required under FINRA rules. For example, working remotely makes it difficult to send and receive hard copy documents and conduct in-person oral arguments. The temporary amendments have addressed these concerns by easing logistical and other issues and providing FINRA with needed flexibility for its operations during the COVID-19 outbreak, allowing FINRA to continue critical adjudicatory and review processes in a reasonable and fair manner and meet its critical investor protection goals, while also following best practices with respect to the health and safety of its staff. 

FINRA staff, with limited exceptions, continue to work remotely to protect their health and safety. As indicated in its previous filings, FINRA has established a COVID-19 task force to develop a data-driven, staged plan for FINRA staff to safely return to working in FINRA office locations and resume other in-person activities. Based on its assessment of current COVID-19 conditions, FINRA does not believe the COVID-19-related health concerns necessitating this relief will meaningfully subside by August 31, 2021, and therefore proposes to extend the expiration date of the temporary rule amendments originally set forth in SR-FINRA-2020-015 from August 31, 2021, to December 31, 2021.

at Pages 2 - 4 of the SEC Release

Unquestionably, there are substantive differences between live hearings for regulatory versus arbitration purposes. Further, the lack of live arbitration imposes a disparate burden on public customers who have been victimized by industry fraudsters and in need of recouping their losses. That being said, sometimes the cure is worse than the illness, and no one in their right mind should want to add insult to injury by dragging defrauded public customers into live FINRA arbitration hearings and exposing those individuals and their families to Covid. That was unconscionable in April 2021 and is still the case in August 2021, and will likely be for an indeterminate time still unfolding. You wish it were otherwise. I wish it were otherwise. But wishing does not ameliorate the pandemic and will not open the doors for FINRA's hearing rooms and safely permit human beings to resume their former interactions.

I do not believe that PIABA's advocates were guilty of bad faith but, rather, engaging in the zealous advocacy that their clients deserve; and, in doing so, those advocates were expressing their clients' frustration with FINRA's delayed adjudication of their claims. Perhaps PIABA's passion overcame its  reason -- which seems an all too common event in these pandemic times. I suspect that PIABA wishes it could now withdraw its April demands to return to live arbitrations. Having long criticized FINRA as a mere lap dog for its large members' interests, I must now undertake the awkward and uncomfortable role of coming to the organization's defense: This time, FINRA is blameless and acting responsibly. 

Finally, we should use the time that Covid has so unfortunately thrown in our faces to alleviate the financial burden that Wall Street foists upon victimized investors. I again sound a clarion's call for an Anti-Fraud Fund. As I have proposed over the last two decades, said Anti-Fraud Fund would provide all defrauded public customers with restitution in the event that member firms or associated persons fail to timely honor any arbitration awards for compensatory damages, costs, and fees. Also, I would abolish mandatory arbitration for customers and associated persons.