Investors make out better with all-public arb panels, latest data show

Results from Finra research likely to give ammo to plaintiffs' attorneys

Jan 15, 2013 @ 4:08 pm

By Dan Jamieson

Finra's all-public arbitration panels look like good bets for wronged investors.

According to new data from the Financial Industry Regulatory Authority Inc., investor claimants were awarded damages in 49% of the cases that were heard and decided by panels of three public arbitrators last year, versus 45% in cases where one of the panelists had industry affiliations.

The statistics may give ammunition to plaintiffs' attorneys who argue that industry panelists who sit on cases administered by Finra. tend to be biased against investors.

The results from 2012, with 99 cases decided by all-public panels, come in the first full year of Finra's permanent all-public panel option, which began in February 2011. In 2011, only 13 cases were heard by all-public panels.

The outcomes are “significant because they show consistently that when customers choose an all-public panel, they have a greater chance of securing a victory,” said claimant's attorney David Robbins, a partner at Kaufmann Gildin Robbins & Oppenheim LLP.

“Our review of these awards indicates that law firms with more experience in the forum generally choose all-public panels,” said Finra spokeswoman Nancy Condon.

In an earlier pilot program that ran from late 2008 through January 2011, 43 cases decided by all-public panels also produced higher win rates for investors. Damages were awarded in 27 of the 43 public cases, or 63% of the time. Investor win rates where an industry arbitrator was involved came in at 45% and 47% in 2009 and 2010, respectively.

On its website, Finra says data from that pilot program were not sufficient to draw meaningful conclusions.

Last year, investors got some amount of damages in 49 of the 99 cases.

The number of all-public arbitrator cases is sure to grow as plaintiffs' attorneys increasingly use the option. In 2011, investors and their attorneys opted into the all-public program in 30 cases. That number jumped to 210 cases last year.

Not all of those cases ended up with three public arbitrators, however. The all-public program gives investors the option of an all-public panel. They are still free, however, to choose an industry panelist.

The Securities Industry and Financial Markets Association supported the all-public panel proposal from the beginning, said Kevin Carroll, Sifma associate general counsel, in an email.

“We also continue to support industry arbitrators, who contribute necessary expertise” to arbitrations, he said.

Win rates alone “are not an empirically valid basis on which to judge the fairness of a dispute resolution system,” Mr. Carroll added.

The total percentage of investor claimants who recover either by a settlement or through an arbitration award can be 70% or more, he said.

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