Conflicts of interest involving arbitrators in securities fraud arbitration and other investment misconduct cases can potentially undermine the integrity of the process and the ability of defrauded investors to recover for their losses. An extreme example was the recent filing of a court case that created news over the alleged failure of an NASD arbitrator to disclose potential conflicts, as reported in “Arbitrator in Citigroup Case Accused of Conflicts of Interest,” New York Times (Feb. 23, 2006).

Attorneys who represent investors in securities arbitration do not have to await the outcome of an arbitration proceeding before trying to ferret out potential conflicts before an award is rendered. Because arbitration forum administrators typically do not vet the background of proposed arbitrators to ensure their impartiality, it’s up to the parties through their advocates to do the necessary due diligence. We have developed effective strategies, and have used them successfully for many years, to uncover conflicts and conflict of interest disclosure failures at the earliest stages during the arbitrator selection process at the NASD and other arbitration forums that adjudicate investor fraud cases.

The securities arbitration questionnaire we utilize calls for detailed disclosure of information about personal, social, professional and business relationships as well as securities industry affiliations, among other areas that can be mined for latent conflicts, if not outright bias. Our 1999 article entitled “Y2K Arbitrator Investigation and Selection” [link to Publications page] addresses our methodology at length. As we’ve stated in another article, careful arbitrator selection is one of the most important steps in the arbitration of an investment fraud customer claim:

“There is one unmistakable truth in securities arbitration: the arbitrators have the last word. Their powers transcend those of judges and juries since the panelists selected to hear a customer case against a broker/dealer will render an award that is not appealable within the arbitration forum and is usually not appealable except on very limited grounds in court. See Federal Arbitration Act, 9 U.S.C. §10 (1947). Since the arbitrators are vested with broad decisional authority, it is critically important that care be taken in their selection. Too often the task of selecting arbitrators is viewed as a minor inconvenience to be disposed of as quickly as possible, instead of as a serious decision which often can irreversibly affect the outcome of your case.”