A report by the Public Investors Arbitration Bar Association charges that investors using a non-attorney representative in a mandatory arbitration may suffer "sometimes severe consequences."
PIABA, whose member attorneys represent investors in securities disputes, said the use of non-attorney representatives in place of lawyers can lead to shoddy representation of investors since they are not required to have malpractice insurance, do not operate under an ethical code or constraints, and are not subject to sanctions from a regulatory body like a state bar association.
The Financial Industry Regulatory Authority Inc. should require attorneys in nearly all situations, the new report concluded.
PIABA said that some non-attroney reps had imposed non-refundable $25,000 deposits, absconded with settlement funds and represented investors without their knowledge. In one case, PIABA said that a non-attorney representative was a former broker who had worked at seven firms, including four that had been expelled from the industry.
In another case, the manager of a "recovery firm" was found to have been barred from the securities industry after failing to disclose several liens and judgments against him, as well as a bankruptcy filing.