Senior investors who have low-dollar legal claims against financial firms could have more places to turn for legal help under legislation being considered in Congress.
The Investor Justice Act would establish a $5 million grant program to fund investor advocacy clinics at law schools. The Securities and Exchange Commission would award the grants in increments of $150,000.
The goal is to add more legal clinics to the 10 that now exist at schools in the eastern United States.
“It would provide an opportunity for clinics to operate in other areas of the country,” said Christine Lazaro, professor of clinical legal education and director of the Securities Arbitration Clinic at the St. John’s University School of Law. “Right now, there is not a clinic west of Chicago.”
Lazaro supervises law students who help New York residents pursue claims against brokers and brokerages in the Financial Industry Regulatory Authority Inc.’s arbitration system. The clinic’s typical clients are senior investors who have lost a portion of their retirement savings and have claims of less than $100,000.
The clinic offers free legal representation, while law firms often don’t take on such small cases.
“For many retirees, they have to go through Finra arbitration themselves or walk away from their claims,” Lazaro said.
Several years ago, the SEC Investor Advisory Committee recommended that the agency support legal clinics. The idea now has momentum on Capitol Hill, as some of the investor advocacy clinics have closed.
Rep. Mike Quigley, D-Ill., introduced the Investor Justice Act in late May. The bill became bicameral when companion legislation was introduced by Sen. Catherine Cortez Masto, D-Nev.
Time is running out to advance the bill before the end of the congressional session in December. Bills that haven't been enacted into law by then die and must be reintroduced in the next Congress, which begins in January.
“Even if the legislation doesn't get passed this session, introduction in both houses shows growing support and understanding of the issue,” Benjamin Edwards, associate professor of law at the University of Nevada Las Vegas, wrote in an email.
The bill is being promoted by the Public Investors Advocate Bar Association and the Consumer Federation of America, among other advocacy groups. Backers are now reaching out to Republican lawmakers to sign on to the legislation.
“We want to get bipartisan support behind this effort before the end of the year,” said Michael Canning, principal at The LXR Group, a government relations consultant.
Most of the applications the St. John’s clinic receives are from people who live outside New York and who aren't eligible to be clients of the clinic, Lazaro said. Other legal clinics in the state are located at Fordham University, Pace University, Cornell University and the Cardozo Law School at Yeshiva University.
Supporters are asking lawmakers to extend such assistance to mostly senior investors in other states.
“The hope is that given who the clinics are helping, that [the bill] will receive bipartisan support,” Lazaro said.
The SEC Historical Society has scheduled a Sept. 14 program to commemorate the 25th anniversary of the opening of the first investor advocacy clinic.
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