“What is the reason we have the securities industry. . . trying to get everything into arbitration? I think it is simple. The reason is, they feel they have a leg up when they go to arbitration and the reason for that mainly is because they have a member of their industry sitting on each panel.” *

Theodore G. Eppenstein, March 3, 1987 at U.S. Supreme Court in Shearson v. McMahon.

Our last post here covered our subsequent statements to Congress over the twenty years since the McMahon case in the Supreme Court, and we have noted Ted’s proposals on behalf of investors as a member of the SICA committee to eliminate the requirement of an industry arbitrator in securities arbitrations. We are not alone in this effort. Read the rest of this entry »

In one of the Securities Arbitration Commentator’s current publications, reference is made to the letter of Richard Ketchum, Chief of the SEC’s Division of Market Regulation at the time, dated September 10, 1987 and the SICA Public Members’ response dated October 9, 1987. There’s a fascinating backstory to these documents, which didn’t just come to light now, more than twenty years later. Indeed, these letters have been in circulation for quite some time in the follow-up to the McMahon decision in June 1987 and to the SEC’s amicus posture in that case backing the brokerage industry. Key aspects of their subject matter were also the focus of our extensive testimony at two hearings in the U.S. Congress in December 1987 and March 1988. Read the rest of this entry »

“Anyone with a sense of history can look at the declining, dismal results that [NASD and NYSE] arbitration has yielded to the investor over the past 20 years to see that the system is not a level playing field. NASD stats show the investor “win rate” has steadily declined. And when the customer does win something, the award is often only a small portion of the loss.”

That’s Ted Eppenstein’s well known view on why investors are now fed up with SRO arbitration, as expressed in an online debate with an industry representative entitled “Out-of-Court Fight, Two Decades After Mandatory Arbitration Took Effect for Investors’ Disputes, Debate over it Gains Renewed Momentum” [article by Jaime Levy Pessin, Wall Street Journal, August 6, 2007, see the Arbitration Alert on our Web site]. Read the rest of this entry »

For literally decades we’ve made recommendations for securities arbitration reform and lobbied strenuously for:

• the end to mandatory securities arbitration,

• the formation of an alternative to self-regulatory organization (SRO) arbitration that’s fair for public investors and outside of the brokerage industry, and

• the end to the appointment of so-called “industry arbitrators” to hear customer cases.

Confirming what we and others have been hearing from investors for years, an independent Study just released today by its authors and by the Chair of the Securities Industry Conference on Arbitration (SICA, chaired by Professor Constantine Katsoris of Fordham University School of Law) demonstrates that most customers of the brokerage industry believe SRO securities arbitration is unfair. This important study, “Perceptions of Fairness of Securities Arbitration: An Empirical Study,” was commissioned by SICA and authored by Professor Jill I. Gross of Pace University School of Law and Professor Barbara Black of Cincinnati School of Law, with the assistance of Yasamin Miller, Director of Cornell University’s Survey Research Institute (SRI). Ted Eppenstein of our Firm, Eppenstein and Eppenstein, is a Public Member of SICA, the committee that initiated the Study. Read the rest of this entry »

Massachusetts Secretary of State William Galvin’s administrative fraud claim against Merrill Lynch, for unauthorized trading, failure to disclose risk and unsuitable investments in collateralized debt obligations (CDOs) involving a city of Springfield account, is arguably the tip of the iceberg in terms of municipal and other investor losses (involving many other brokerages and banks) tied to a risky CDO market that has all but collapsed. These investments also appear to have been peddled by the financial services community at a time last year when the underlying mortgage and real estate markets were already weakening substantially. Part of an apparently ongoing statewide investigation, the claim on behalf of the city of Springfield was filed despite Merrill Lynch’s deal with Massachusetts attorney general Martha Coakley to make full restitution of the city’s original $13.9 million investment plus the city’s outside-counsel legal fees. Read the rest of this entry »

Following up on the last posting here, it seems that rigorous due diligence and accurate reporting of risk actually may not have been a high enough priority in the mortgage-backed securities business, not when there was so much to be made off unsuspecting investors induced to buy into this hyped market. Thus, the New York state attorney general’s probe into the mortgage-backed securities industry is reported to be heating up after Clayton Holdings, Inc., a full service management firm catering to players in the MBS business, struck a deal with the AG. Read the rest of this entry »

Investors are numb from losses attributable to investments in collateralized debt instruments linked to the residential sub-prime mortgage meltdown and continuing market volatility from a variety of other causes. The question is, what should they do now? It may be time to contact a professional to explore the options. Read the rest of this entry »

As predicted, the U.S. Supreme Court dropped the other shoe this week when it spurned putative class action investor attempts to get the Court to review their case against “secondary” players (financial institutions such as Merrill Lynch and Credit Suisse), who were alleged to have participated in the activities leading to the Enron collapse in 2001. Read the rest of this entry »

The big business oriented majority on the U.S. Supreme Court has again asserted (this time in Stoneridge Investment Partners v. Scientific-Atlanta Inc.) the Court’s narrow view of the ability of investors to seek redress under the securities laws unless investors can show actual “reliance” on the behavior/communications of secondary actors such as banks and accountants. As already noted in the media, the decision may not bode well for a pending class action suit by Enron investors against investment banks. (see Linda Greenhouse, “Supreme Court Limits Lawsuits by Shareholders,” (N.Y. Times, January 16, 2008)). Read the rest of this entry »

Is mandatory securities arbitration on the way out? If Congress (either this year or under a new administration come January 2009) and the state securities regulators at NASAA (the North American Securities Administrators Association) have their way, two of investors’ biggest complaints may become a thing of the past: mandatory securities arbitration AND the mandatory securities industry arbitrator now required to sit in judgment of securities fraud and other investor claims (on three-member arbitration panels as a so-called “non-public” arbitrator).

We’ve supported both reforms vigorously for over twenty years in places where it should count, making the case for prohibiting the fundamentally unfair and unconstitutional predispute imposition of these mandatory requirements on investors: Read the rest of this entry »