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Andrew Whiteman Assists Securities Law Clinics with Amicus Brief Filingby Andrew Whiteman

Andrew Whiteman Assists Securities Law Clinics with Amicus Brief Filing

On April 19, 2019, Andrew Whiteman filed an amicus curiae brief in the United States Court of Appeals for the Fourth Circuit on behalf of three law school law clinics: University of Miami School of Law Investor Rights Clinic, Elizabeth Haub School of Law at Pace University Investor Rights Clinic, and St. Johns University School of Law Securities Arbitration Clinic (the “Clinics”).

An amicus curiae brief, also known as a “friend of the court brief,” is filed in an appellate court by a non-party to the dispute who has an interest in the outcome of the court’s disposition. The Clinics filed their brief in support of the appeal by the plaintiff-appellants, Rohit Saroop, Preya Saroop, and George Sofis (“Plaintiffs”). The Plaintiffs won their FINRA arbitration case. However, the arbitration decision was vacated by a judge of the United States District Court for the Eastern District of Virginia. The Plaintiffs then appealed the case to the Fourth Circuit Court of Appeals.

The case involves the following facts. In January 2017, an arbitration panel appointed by the Financial Industry Regulatory Authority (“FINRA”) rendered an arbitration award in favor of Plaintiffs against the defendant, Interactive Brokers LLC (“Interactive”). Interactive filed a motion in the District Court to vacate the arbitration award. The Plaintiffs moved to confirm it. The District Judge remanded the arbitration decision back to the panel of arbitrators for clarification of the basis for their award in favor of the Plaintiffs. After the remand, the panel issued a slightly modified version of their initial award in January 2018, again in favor of the Plaintiffs.

Upon review of the modified award, the District Court granted Interactive’s motion to vacate the award and remanded the arbitration case to a new panel of FINRA arbitrators for reconsideration of Interactive’s counterclaims against the Plaintiffs. The District Judge decided to vacate the award after finding that arbitrators based their award against Interactive solely on the ground that Interactive violated a FINRA conduct rule, Rule 4210. The Court ruled that the arbitrators’ decision constituted “manifest disregard of the law” because the law is clear that there is no private right of action to enforce FINRA conduct rules, the panel knew of and understood the law on this point, they found the law to be applicable to the case, and they ignored it.

The Clinics’ amicus brief makes several points. FINRA’s arbitration rules do not require the claimant to specify any cause of action or legal theory in a statement of claim. FINRA arbitration rules do not require the arbitrators to specify any cause of action or legal theory in an award. Under established legal precedent, the arbitrators did not manifestly disregard the law, and the District Court erred in its finding concerning the arbitrators’ rationale for the award.

This is an important case for several reasons. First and foremost, the judicial power to review of arbitration decisions is extremely limited. Judicial review of arbitration decisions has been described as “severely circumscribed” and “among the narrowest known at law.” Apex Plumbing Supply, Inc. v. U.S. Supply Co., 152 F.3d 188, 193 (4th Cir. 1998). The Fourth Circuit has stated that “a court sits to determine only whether the arbitrator did his job – not whether he did it well, correct, or reasonably, but simply whether he did it.” Wachovia Securities, LLC v. Brand, 671 F.3d 472, 478 (4th Cir. 2012). In this case, the District Court’s finding that the arbitrators’ decision was based solely on a violation of a FINRA rule is highly questionable. The Court’s analysis of the “manifest disregard” standard seems deeply flawed. It rests in part on the premise that the case law is clear that an arbitration award cannot be based on a violation of a FINRA rule. The Court cited numerous cases that have held that a FINRA Rule may constitute evidence of the broker-dealer’s duty of care to his customer, but held that those cases were inapplicable because “it was apparent on the face of the arbitrator’s decision that a violation of FINRA Rule 4210” was the sole basis for liability. Finally, the Court’s ruling that the arbitrators knew the law, understood it, knew the law was controlling, and disregarded it is based on what was in Interactive’s arbitration brief. This finding is problematical because the Plaintiffs’ submission to the panel contested Interactive’s argument and cited contrary authority.

This case provides the Fourth Circuit to provide additional guidance on the scope of judicial review of arbitration decisions.

A copy of the District Court’s opinion is here.

A copy of the Clinics’ amicus brief is here.

It is expected that the Fourth Circuit will rule on the case within six to nine months.

© Andrew Whiteman 2019

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The lawyers at Whiteman Law Firm have been handling securities matters for over 30 years. Please contact us for more information.

 

FINRA Requires Brokerage Firms to Communicate with Customers when a Broker Leaves the Firmby Andrew Whiteman

Ask questions if your broker leaves his firm.

According to new regulatory guidance from the Financial Industry Regulatory Authority, known as FINRA, member firms are required to do the following:

  1. In the event of a registered representative’s departure, the member firm should promptly and clearly communicate to affected customers how their accounts will continue to be serviced; and
  2. The firm should provide customers with timely and complete answers when the customer asks questions about a departing registered representative

The new requirements are spelled in Notice to Members 19-10, which was issued on April 5, 2019. The purpose of the new guidance is to ensure that customers can make a timely and informed choice about where to maintain their assets when their registered representative leaves a firm. Customers should not experience any interruption in service as a result of a representative’s departure. Member firms should have policies and procedures in place to assure that customers serviced by a departing registered representative will continue to be serviced, including how and to whom the customer may direct questions and trade instructions and the identity of the representative to whom the customer will be assigned at the member firm.

NTM 19-10 also states that the member firm should “communicate clearly, without obfuscation, when asked questions” by customers about the departing registered representative. Provided the departed representative has consented to disclosure of his or her contact information to customers, the firm must provide the departed representative’s contact information, such as phone number, e-mail address, or mailing address. All information provided by the member firm about the departing representative must be “fair, balanced and not misleading.”

Thus, under NTM 19-10, a member firm (1) must immediately notify customers that their representative has departed and assign a new representative to the customers, (2) may not attempt to hinder or delay customers’ efforts to contact their former registered representative by refusing to provide his contact information when authorized to disclose it, and (3) must provide fair, balanced, and not misleading answers to all customer questions resulting from the representative’s departure.

Securities arbitration – Should you hire an attorney?by Andrew Whiteman

Here is a well-written article, co-authored by FINRA and PIABA, about why investors who are considering securities arbitration should hire an attorney.

Securities Arbitration – Should You Hire an Attorney?

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The lawyers at Whiteman Law Firm have been representing investors in securities claims for over 30 years. We represent individuals and businesses who have suffered financial losses due to fraudulent investment schemes sold by unscrupulous or inept investment promoters, stockbrokers, investment advisors or insurance salesmen. If you have suffered losses due to the misconduct of an investment professional, you need competent attorney representation to help you recover your losses. Whiteman Law Firm assists investors to recover losses through litigation and arbitration. Our attorneys represent investors in all types of securities disputes. We handle everything from complex federal and state court litigation to individual customer arbitrations. We can review the facts of your case on a confidential, no-cost basis, and advise you on your options for recovering your investment losses.

Please contact us for more information.

 

FINRA will Seek to Ban Compensated Non-Attorney Representatives from Arbitrationsby Andrew Whiteman

Whiteman Law Firm supports action by FINRA to ban compensated non-attorney representatives (“NARs”) from representing parties in securities arbitrations.

FINRA’s Board of Governors met on December 12 and 13 for its fourth quarter meeting. The Board approved filing with the SEC proposed amendments to the codes of arbitration and mediation procedure to prohibit compensated NARs from practicing in the FINRA arbitration and mediation forums. See FINRA’s press release dated December 21, 2018, for a full report.

This change was supported by the Public Investors Arbitration Bar Association (“PIABA”), a membership organization of attorneys who represent investors in securities arbitrations. See PIABA’s statement in support of the proposed rule change to ban compensated NARs.

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The lawyers at Whiteman Law Firm have been representing investors in securities claims for over 30 years. We represent individuals and businesses who have suffered financial losses due to fraudulent investment schemes sold by unscrupulous or inept investment promoters, stockbrokers, investment advisors or insurance salesmen. If you have suffered losses due to the misconduct of an investment professional, you need competent attorney representation to help you recover your losses. Whiteman Law Firm assists investors to recover losses through litigation and arbitration. Our attorneys represent investors in all types of securities disputes. We handle everything from complex federal and state court litigation to individual customer arbitrations. We can review the facts of your case on a confidential, no-cost basis, and advise you on your options for recovering your investment losses.

Please contact us for more information.

 

 

 

A Third of FINRA Arbitration Awards Go Unpaidby Andrew Whiteman

A third of FINRA arbitration awards are unpaid.

Richard W. Berry, FINRA Executive Vice President of Dispute Resolution, recently provided a statement to the SEC Investment Advisory Committee on customer recovery in FINRA arbitration cases. According to Mr. Berry, “about a third” of cases in which FINRA arbitrators award damages to customers result in unpaid awards. Unpaid awards represent only about 2% of the 13,000 customer arbitrations closed between 2012 and 2016. The vast majority of cases are closed by settlement, not by a decision by the arbitrators. However, the fact that a third of arbitration awards go unpaid is significant and disturbing.

Investors should be aware that most broker-dealers do not carry insurance for the types of claims typically brought in FINRA arbitration cases. To make matters worse, the regulatory capital required to conduct business as a FINRA broker-dealer is surprisingly low. The continued existence of a thinly-capitalized firm may be jeopardized if the firm experiences a number of customer claims within a short period of time.

Mr. Berry’s statement indicates that FINRA will consider advocating for rulemaking by the SEC to maintain additional capital.

Until that happens, investors are encouraged to investigate the financial position of a broker-dealer before doing business with that firm. A broker-dealer’s annual financial statements are required to be submitted to the SEC on Form X-17A-5 and are available to the public through the SEC’s Edgar Company Filings database.

Mr. Berry’s entire statement may be accessed here.

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The lawyers at Whiteman Law Firm have been representing investors in securities claims for over 30 years. We represent individuals and businesses who have suffered financial losses due to fraudulent investment schemes sold by unscrupulous or inept investment promoters, stockbrokers, investment advisors or insurance salesmen. If you have suffered losses due to the misconduct of an investment professional, you need competent attorney representation to help you recover your losses. Whiteman Law Firm assists investors to recover losses through litigation and arbitration. Our attorneys represent investors in all types of securities disputes. We handle everything from complex federal and state court litigation to individual customer arbitrations. We can review the facts of your case on a confidential, no-cost basis, and advise you on your options for recovering your investment losses.

Please contact us for more information.

 

 

 

 

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