Finra arbitration cases soar

Jan 22, 2010 @ 2:30 pm

By Darla Mercado

New arbitrations filed with Finra surged in 2009 to 7,137 cases, up from 4,982 cases in 2008, according to statistics recently released by Finra. That's a 43% gain.

The number of complaints went up in nearly all categories, with the exclusion of online trading — which went to zero from three. The most common complaint on the list involved — surprisingly — breach of fiduciary duty, racking up 4,206 arbitration claims last year. Though registered representatives are bound to ensure only that products they sell are suitable, clients' attorneys have used the common-law definition of fiduciary duty when filing claims.

Misrepresentation and negligence claims were second and third on the list, cited in 3,408 and 3,405 cases, respectively.

Cases involving mutual funds and common stock were the most numerous, with the former being the subject of 1,556 claims last year, up from 1,069. Common stock claims rose from 773 to 1,367 in the space of a year.

Interestingly, variable annuities experienced a threefold spike in arbitration claims, rising to 123 cases filed with Finra. Only 47 were filed in 2008. The products were the focus of a number of disciplinary actions last year, including a $1.5 million fine against Mutual Services Corp. in March for supervisory failures related to exchanging variable annuities.

The activity in variable annuities has kept plaintiff's attorneys busy.

“We've seen a definite uptick in the last 12 months in variable annuity cases,” said Andrew Stoltmann, a plaintiff's attorney. “Just a year to two years ago, the markets were tight and the brokers wanted to put clients into a high-commission product.” He added that many of the variable annuity cases he has seen involved products with risky subaccounts and clients over 60 with 10% to 25% of their net worth in the annuity.

The view may be different for annuity holders who bought their products early and who are benefiting from locking in a higher market value, Mr. Stoltmann noted. “A lot of the [annuities in question] didn't have those features, and for people who didn't get that, it's really problematic,” he added.


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