February 6, 2013
I often represent investors in FINRA arbitrations. The proposed rule shifts considerable expense, risk, and delay to the investor-claimant. If the investor wins the case, as is likely if there is a mid-hearing referral, the respondent(s) arguably will have at least a colorable ground to appeal, even if FINRA is correct about the referral not being ground for a court to overturn the award. Payment to the investor will be delayed, and the investor and his or her lawyer will have the burden and expense of litigating the effect of the referral. Also, FINRA does not appear to have analyzed whether there is an inappropriate effect on the arbitration deliberative process and the requirement to keep an open mind until all of the evidence and argument is concluded and all arbitrators have deliberated.
The better solution, of course, is for FINRA to increase enforcement activities overall.