Some lawyers warming up to virtual Finra arbitration hearings

New statistics from regulator show slow pick-up, but concerns remain over use of Zoom

Lawyers representing claimants in Finra arbitration cases are warming up to conducting virtual hearings but still have qualms about conducting complex proceedings on social media.

The Financial Industry Regulatory Authority Inc. on Monday extended the suspension of in-person arbitration hearings through the end of October due to social distancing related to the coronavirus pandemic.

Since in-person were first postponed in March, Finra has offered remote hearing options using Zoom if the parties agree to it or if it’s ordered by arbitrators.

Last week, the broker-dealer self-regulator published statistics on the uptake so far. The Finra analysis shows that in contested motions for virtual arbitration hearings, arbitrators have granted 24 and denied 8 that were requested by customers. Another 10 cases remain open. Arbitrators agreed to eight virtual hearings in cases involving disputes between registered representatives and firms while denying seven requests.

Sam Edwards, president of the Public Investors Advocate Bar Association, is one of the lawyers who has participated in a Zoom hearing. He said he was pleasantly surprised.

“I personally liked it,” said Edwards, a partner at Shepherd Smith Edwards & Kantas. “I don’t know that every lawyer is going to feel that way.”

Edwards said he chose a straightforward case that involved few witnesses and documents.

“I purposely picked a case to test it out,” he said. “That doesn’t suggest it’s right for every case.”

It’s easier to conduct short witness testimony and to pinpoint key parts of documents on Zoom, Edwards said. He also praised a Finra staffer who was available for help with the technology.

“Our Finra rep did a great job,” Edwards said.

Lisa Braganca, owner of an eponymous law firm, is willing to try online arbitration.

“I’m less concerned about it,” said Braganca, a former enforcement chief in the Securities and Exchange Commission’s Chicago office. “I would be interested with the right case in doing a virtual hearing. Most people are hanging back right now because it’s always better to have someone else test the system.”

That’s also the conclusion drawn by George Friedman, editor in chief of the Securities Arbitration Alert. He analyzed Finra statistics and found that pending arbitration proceedings are increasing – from 4,781 in March to 5,062 in July.

“It would appear to me a significant number of parties are not taking up the Zoom option,” said Friedman, a former Finra arbitration director. “Cases are piling up waiting for the return of in-person hearings.”

Concern has been growing about a backlog of cases due to the suspension of in-person hearings. Several lawyers have said they worry that some claimants — especially elderly ones — can’t afford to have their cases delayed indefinitely by the pandemic.

Although Zoom hearings can be an efficient way to speed up the process, lawyers cite shortcomings that keep them from being widely embraced. One of the problems is Zoom doesn’t capture body language.

It’s difficult to “read the room,” Edwards said. That can be a crucial part of a complex case, especially one that hinges on the credibility of a claimant or respondent.

Braganca said it’s an advantage to put claimants in the same room with arbitrators because they can make their case in nonverbal ways.

“I have clients whose story comes across in their very being,” she said.

It looks as if Zoom arbitration hearings could be the best alternative for conducing proceedings for a while. Unlike the suspension of in-person hearings, which happened overnight, their resumption will have to meet criteria that Finra has laid out.

“I see the return to in-person hearings rolling out over time as conditions improve,” Friedman said.

In the meantime, more lawyers and brokerage firms will have to warm up to arbitration hearings done through social media — and learn to fix their eyes on their laptop camera when making their arguments.

“All of us are getting more comfortable looking at the dot,” Braganca said.