Making Securities Arbitration Fair for Investors: NASAA, the North American Securities Administrators Association committed to investor protection, has come out strongly in favor of “prohibiting broker-dealers from requiring investors to accept mandatory arbitration clauses” and in support of passage of the “Arbitration Fairness Act of 2007,” which is pending in both the Senate (S.1782) and the House of Representatives (H.R. 3010) in the U.S. Congress.

In a letter this fall to Senator Russ Feingold (D-MN) of the Senate Judiciary Committee, the then President of NASAA, Joseph P. Borg, made the case for the state securities regulators’ view that “this ‘take-it-or-leave-it’ clause in brokerage contracts is inherently unfair to investors and . . . the Arbitration Fairness Act of 2007 is a positive step in the right direction.” Ted Eppenstein testified on October 25, 2007 before the House Committee on the Judiciary, Subcommittee on Commercial and Administrative Law in support of the House Bill, H.R. 3010, to ban mandatory arbitration for investors. Ted was the only attorney representing investors to testify at this session of Congress in favor of specifically including securities arbitration in the scope of this important legislation.

NASAA criticized the typical panel of FINRA arbitrators consisting of “a mandatory industry representative and two public arbitrators who may have prior affiliation to industry”: “This industry presence on the panel destroys any pretense that the forum is fair and impartial.” NASAA enumerated additional targets in the industry run securities arbitration system at FINRA for further Congressional review:

“NASAA believes Congress should also review the manner in which arbitrations are conducted to determine whether (1) there is sufficient disclosure of potential conflicts by panel members; (2) selection, qualification, and composition of the panels is fair to the parties; (3) arbitrators receive adequate training; (4) explanations of awards are sufficient; and (5) the system is fast and economical for investors.”

We have previously recommended reforms for improvement in many of these aspects of the industry run, self-regulatory organization securities arbitration system. Go to our Securities Law Arbitration Web site for more.