A Hobson's Choice for Pro Se Respondents in FINRA Arbitrations

June 24, 2010

In its FINRA Arbitration Statement of Claim filed June 9, 2009, Claimant Banc of America Investment Services, Inc. (BAI) sought damages of $71,250.00, representing the principal amount due from former employee Respondent Mark Embertone on a Promissory Note dated December 1, 2006.  Additionally, BAI sought accrued interest of $3,572.16 (computed at 5% per annum) and accruing interest (determined to be $9.76 per diem from the alleged default date of December 1, 2008) plus attorneys' fees and costs. In the Matter of the Arbitration Between Banc of America Investment Services, Inc., Claimant, v. Mark R. Emberton, Respondent (FINRA Arbitration # 09-03507, June 11, 2010).

Respondent Embertone represented himself (pro se), generally denied the allegations, and asserted various affirmative defenses.

Pursuant to a stipulated settlement, the parties resolved their disputes on the following basis:

  • $71,250 in compensatory damages;
  • $6,617.28 in interest through October 9, 2009;
  • $7,679.30 in attorneys' fees;
  • $3,791.99 in costs;
  • and additional interest at the rate of 10% per annum from October 9, 2009 until the date of full payment.
Bill Singer's Comment: It took about a year from the date that BAI filed its Claim for this FINRA arbitration to settle.  What benefit did either party gain from that delay?  Frankly, not much, if anything for Respondent Emberton -- but it looks like a Grand Slam for Claimant BAI.

If Respondent Emberton had settled solely on the basis of repayment of only the disputed $71,250 in principal, then I could sort of understand the year's worth of jockeying.  However, Emberton paid the whole enchilada here -- principal, accrued interest, accruing interest, fees, and costs.  About the only advantage that he may have earned was a one-year stall on the payments.

What's a one-year delay worth? For some former employees, that delay may be the whole point for failing to agree to an earlier, more timely settlement.  After the passage of a year, financial prospects may improve and some employee respondents are in a better position to pony up the dollars that are owed.  Other times, the delay, in and of itself, is the desired goal.  As I am often heard to say: No man should be in a rush to his own hanging.

Would an attorney have done better for Emberton than the Respondent did by representing himself?  Well, that's a nuanced answer. As a veteran industry lawyer, I would have pressed BAI for cancellation of the the interest payments (accrued and accruing), attorneys' fee, and other costs.  If I got my way, those deductions would have resulted in a discount to my client of something like $18,000.  Of course, BAI may have just as steadfastly stood its ground against my demands, as it apparently did for Emberton's.

Of course, let's not forget that I don't work for free. A lawyer likely would have sought at least a $5,000 to $10,000 Legal Retainer (not a use-it-or-lose-it payment but merely a deposit as against future charges) to represent Emberton. Many brokers don't have the funds necessary to hire competent counsel.  So the desire and the ability to hire a lawyer are often very different considerations. 

Then there is also the strategic advantage of lawyering up. If Emberton had retained an experienced industry lawyer, it's possible that BAI would have realized that they no longer had a pro se litigant to kick around and the parties may have reached a quicker, fairer settlement. If a former-employee respondent in these cases brings out the heavy legal artillery from day one, that may accelerate things so that everyone gets to the bottom line quicker:  What's the least amount of bucks that you will take, and how long will you give my client to pay it? 

Respondent's law firm may have dealt with the brokerage firm's in-house or outside counsel in the past (and may have some cases with them now), and professional courtesies may permit for some off-the-record, lawyer-to-lawyer talk, if not outright horse-trading involving several cases.  Going with the assumption that Emberton had hired an industry defense firm, let's say that a "quick settlement" (perhaps within a month from the initiation of contact by his lawyer to BAI) would have cost Emberton $2,000 to $5,000 in legal fees and saved him $10,000 in payments to BAI.  Also factor in the avoidance of additional legal fees for proceeding with the case through Discovery and hearings (let's say that would cost another $10,000, which would be saved by prior settlement). On the other hand, BAI may have drawn the line with Emberton and would not cut him any discount, regardless of whether Bill Singer represented him or not.  Under those circumstances, not only would Emberton be on the hook for thousands of dollars in legal fees, and would then have to shoulder the burden of full repayment to BAI. You can do the math on whether any of that makes economic sense.

For many, the prospects of a FINRA intra-industry proposition is little more than being caught between a rock and a hard place, faced with the prospect of damned if you do, and damned if you don't. In this day and age, many industry Respondents simply lack the cash to hire a lawyer.  Nonetheless, when you proceed pro se, you are simply hanging out an "amateur hour" sign and the knives will be sharpened for what may be viewed as a quick and easy kill by Claimant's counsel.   



Regulatory lawyer Bill Singer has analyzed and posted the latest crop of FINRA disciplinary cases.  

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