March 20, 2008
The purpose of this letter is to provide the Securities and Exchange Commission with comments on the above referenced proposed rule change which was initially filed by the Financial Industry Regulatory Authority, Inc. (FINRA) on November 2, 2007 and subsequently amended on February 13, 2008.
I am an attorney whose practice is exclusively devoted to the representation of public investors in their disputes with the securities industry. Moreover, I am the immediate-past President and a current member of the Board of Directors of the Public Investors Arbitration Bar Association.
It is my opinion that the proposed rule change is a viable solution that will substantially reduce the systemic predatory motion tactics that have, for far too long, intimidated and coerced public investors when they have attempted to have their claims against the securities industry adjudicated in the existing mandatory system of arbitration.
Accordingly, subject to consideration of the comments set forth below, I would request that the Commission approve the proposed rule change on an accelerated basis.
The filing of a motion to dismiss, in the context of an investor-initiated arbitration proceeding, not only requires the unnecessary expenditure of time and money to formulate and submit the required response to the same, but it is inapposite to the core principles of arbitration which is to provide an informal, expeditious and cost-effective alternative for the resolution of disputes.
With limited rights to discovery and no viable avenue for the appeal of an adverse decision, public investors are all-too-often being required to literally fight for their financial lives before they are provided with the opportunity - some would say their constitutional right - to present documentary and/or testimonial evidence at a full hearing before a duly constituted panel of arbitrators.
This has been an untenable situation for hundreds - if not thousands - of public investors over the past few years. And while the interests of fairness and justice would suggest that motions to dismiss should not even be allowed in any arbitration forum, I remain cautiously optimistic that the proposed rule change will accomplish its stated purpose.
There are, however, a few concerns that should be considered in connection with the approval of the proposed rule change.
First, it is noticeable that the proposed rule change does not provide any guidance for arbitrators as to the standards that are applicable to the consideration of a motion to dismiss. While it may not be necessary to include these standards within the text of the proposed rule change itself, it will be critical that these standards be clearly set forth in the training materials of the arbitrators - especially since so many arbitrators are not lawyers. These standards, which have been enunciated by the United States Supreme Court for decades, would include the fact that, in the context of a motion to dismiss, all of the facts stated in the Statement of Claim must be assumed to be true all reasonable inferences to be derived from the facts set forth in the Statement of Claim must be construed in favor of the public investor and that if there is a reasonable question of law or fact, then the motion to dismiss should be denied.
Secondly, it is noticeable that while the securities industry would be provided with the codification of the potential for the filing of a motion to dismiss, both prior to and/or after the conclusion of the public investors case-in-chief, there is no corresponding codification for public investors to be able to submit a motion for summary judgment at any point in time in an arbitration proceeding. This disparity should be of concern to all interested parties.
Finally, it must be noted that the provisions which would permit the securities industry to assert a motion to dismiss at the conclusion of the public investors case-in-chief, could potentially lead to the manipulation of the arbitration proceeding and extensive delays in the final resolution of the same. If, for example, as the proposed rule change would currently permit, the securities industry were to submit a motion to dismiss at the conclusion of the public investors case-in-chief, it would be virtually impossible for any legal research to be undertaken so as to facilitate the preparation of a brief in opposition to the motion by counsel unless the continuation of the arbitration hearing were to be postponed.
In summary, while it is my opinion that motions to dismiss should never be permitted in the context of an arbitration proceeding, the proposed rule represents a fair and balanced compromise of the competing interests on this issue.