The Battle for a Fair Arbitration System for Investors

By Dale Ledbetter

There is a growing drumbeat from officials and members of the public demanding an alternative to the biased system of mandatory arbitration administered by the Financial Industry Regulatory Authority (FINRA). The battle for some semblance of justice for investors is not new, however. 

In 2005, Edward O’Neal, a Ph.D on the faculty at Wake Forest University at the time and Dan Solin, then an attorney representing abused investors who has since written several New York Times bestsellers about the securities industry, published an extensive statistical analysis of how Claimants fared in FINRA arbitrations. The results were discouraging for those seeking relief in the only forum they were permitted to use. The “win rates” from 1995-2004, the period used in the study were:

1995-48%

1996-51%

1997-56%

1998-56%

1999-59%

2000-51%

2001-52%

2002-47%

2003-48%

2004-44%

The average for the period was 50.7%. Of course, “winning”, which means getting an award does NOT mean that the Claimant got back the money they lost. During the time period being analyzed, those with claims between $100-250,000 received 52% of their losses and those with claims exceeding $250,000 got an average of 37%. Since those days there have been economic collapses of major Wall Street firms, multi-billion dollar bailouts by taxpayers and one scandal after another. Yet the win rates have not increased. They have become worse!

The win rates for the past 6 years offer little solace for victims of Wall Street misconduct:

2008-42%

2009-45%

2010-47%

2011-44%

2012-45%

2013-42%

During recent years, virtually all costs of pursuing an arbitration have escalated, meaning that even “successful” claimants are getting back only a pittance of what was taken from them. There are only two solutions that have any meaningful impact on these dismal results. The first would be for people to rise up in mass and apply to become arbitrators. The industry shills that make up most panels would be in the minority and it would require even less transparency than now exists in the FINRA process to continue filling panels with FOIs (Friends of Industry).

The second, and more meaningful solution would be the passage of legislation giving investors the right to choose. They could either pursue a remedy in a courtroom or accept the ongoing route of a FINRA arbitration. Everyone who maintains an account with a FINRA registered firm should write their Congressional representatives urging them to take action to protect investors from the epidemic of abuse that costs billions of dollars every year.

Dale Ledbetter
Ledbetter & Associates
(954) 635-5759 Direct 
(954) 540-3642 Cell