April 10, 2008
PECHT ASSOCIATES, PC
1205 Manor Drive
Mechanicsburg, PA 17055
April 10, 2008
Nancy M. Morris
Secretary Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-0609
Re: Proposed Revisions to FINRA Code of Arbitration Procedure-Motions to Dismiss SR-FINRA-2007-021
Dear Ms. Morris:
I am an attorney in private practice who represents claimants as a part of that practice. I am also a FINRA arbitrator, a former registered representative, and a former county, and state prosecutor.
I write in support of the proposal for the Motion to Dismiss. I support the rule for the following reason: It probably is better than the existing rule, although it contains provisions which may prove to be as bad or worse. Only time will tell. The unknown factor will be in how FINRAs staff chooses to interpret the rule and write its arbitrator training manual.
I say the new rule probably will be better than the existing rule because of my experience with FINRA SRO arbitration. Recently, one of my clients had his case dismissed at a pre-hearing phone conference on a Motion to Dismiss before one bit of discovery or testimony had been given. The written reason given by the arbitration panel was that although the claim was eligible under the six year eligibility rule, all claims were barred by various statutes of limitation even though one of those claims had a six year statute of limitations. Now, in court that absurdity would have been overturned in all likelihood. But because of the statutory rules and the case law that has developed around arbitration, that ruling will likely withstand the appeals that are being pursued currently (as you are no doubt aware, the likelihood of vacating an arbitration award on appeal is slim). And so, the system of justice and equity that has evolved in NASD/FINRA arbitration can be distorted and shaped by the industry, and arbitrators who are sympathetic to it, without adequate review by the courts.
This proposed rule would likely, though not assuredly, prevent the aforementioned dismissal from occurring at that stage of the process (i.e., before the claimant had a chance to tell his side of the story under oath and to hear the other side tell its side of the story under oath). Moreover, hopefully, the law of unintended consequences will not result in the cure being worse than the disease.
That said, making this change in the rules is a bit like talking about whether the impending rain will negatively impact the emperors parade rather than the fact that the emperor is not wearing any clothes: This system of forced arbitration in a forum run by the very entity being regulated is egregious, uncompetitive, and unbecoming of this great democracy.
There are two ways that the SEC can make great strides toward achieving a system of fairness and/or justice if it wants to: 1) make arbitration voluntary so that a claimant can choose to go to arbitration or go to court, or 2) make the choice of arbitration forum dependant on mutual consent (i.e., eliminate the forced use of the industry-run forum of arbitration).
Proponents of forced arbitration typically claim that arbitration is good for the consumer because it is quick, efficient and inexpensive. As one observer has noted, a coin toss also qualifies as quick, efficient and inexpensive but no one in the industry seems to be suggesting that procedure. To the extent an arbitration is quick and efficient, but without fairness or justice, it is usually seen from the standpoint of the consumers I am familiar with as just thatquick, efficient, unfair and unjust. Whether this perception is supported by statistics cannot be proven or disproven because, last I heard, FINRA refuses to make their records public. But, of course, what should we expect from a private system of justice run by the industry being regulated? If I had something to hide and no one made me reveal it, I suppose I would keep it hidden as well.
In conclusion, isnt it ironic that the one place where proponents of a free market (i.e., those on Wall Street and K Street) dont want competition is in the regulation of their ability to feed on the little fish at the bottom of the food chain. Why not let the free market determine where a claim will be resolved. Give customers the option to go to court or go to arbitration, or go to any arbitration forum both parties agree to. The proof of whether FINRA arbitration is fair will be in who chooses to go there.
Rob Bleecher, Esquire