August 20, 2010
I have represented brokers, firms, and investors and believe that arbitration should not be mandatory. Investors and brokers who have often lost most of their life savings (thousands of people now have lost money due to Ponzi schemes sold by broker/dealers) should have a right to a trial before a jury of their peers if that is their choice. On the other hand, if they prefer arbitration,they should be allowed to choose that forum.
Dodd-Frank has changed the law repsecting the protection of whistleblowers who have gone to the SEC to report securities fraud. They can now file a lawsuit if the wrongdoer retaliates against them. This changes the law. Under SOX, they did not have this option, but had to first endure a regulatory proceeding and then arbitration.
Investors should have no less protection than whistleblowers. Both are exposing fraud--and investors are the victims of fraud. By logical extension, investors should have the right to go to court when brokers have violated the securities laws. A jury, not an arbitration panel, should, if the investor chooses,determine the amount of compensatory and punitive damages to which they are entitled.
The Dodd-Frank approach should protect the victims of fraud, as well as the insider "watchdogs". Congress has determined that serious sanctions need to encourage compliance with the securities laws. For this reason, whistleblowers now can attempt to recover two times their lost wages if they are fired--in court. Investors should also have the right to go to court, where complete relief, including interest and punitive damages are more likely to be awarded. Only by increasing the potential cost of wrongdoing will the securities industry begin to police itself and begin protecting the investors it purports to serve.
Choice--let investors choose whether to be in court or in arbitration. Similarly brokers who have claims, even if not whistleblowers, should also have this choice.