The Financial Industry Regulatory Authority’s postponement of in-person arbitration proceedings is benefiting firms while delaying investors’ attempts to recover what they may have lost, according to a new letter to FINRA from the Public Investors Advocate Bar Association (PIABA).
PIABA President David Meyer argues in the letter that many courts and several private arbitration forums throughout the country have already restarted face-to-face trials and meetings. The organization conducted an analysis showing that every court in the country’s 20 largest FINRA hearing locations are already conducting in-person trials or are scheduled to do so by July.
Additionally, while FINRA is consulting with a third-party health consultant on COVID-19 safety, it hasn’t publicly released information on what “health thresholds” must be cleared for in-person proceedings to resume, Meyer argued.
“The lack of transparency is concerning, particularly since the indefinite delay in FINRA in-person hearings benefits the FINRA-member brokers and brokerage firms defending the arbitration claims brought by their customers in this forum,” the letter read. “Investors do not have the option to take their disputes to court so they are at the mercy of FINRA to timely administer its arbitration cases.”
The regulatory agency paused in-person proceedings after COVID-19 hit in March 2020. At least six weeks before an in-person hearing is scheduled, the agency’s Dispute Resolution Services (DRS) gauges state and local public health conditions on whether it can and should proceed, according to the agency’s guide on resuming face-to-face hearings. FINRA in-person proceedings are currently scheduled to restart on July 2.
While remote proceedings remain an option in lieu of face-to-face meetings, both parties must agree to using this option, and brokerage firms are preferring to delay, according to Joseph Peiffer, a New Orleans-based attorney who is on PIABA's board of directors. He stressed that many investors are not able to move forward on arbitration proceedings, and therefore can’t access the money they’ve allegedly lost, while firms benefited from extending the process as long as possible.
“If I might owe you money, and I can put off when I might have to pay you money, why would I agree to any sort of proceeding that would make it so I might have to pay you that money earlier?” he said.
Sander Ressler, the co-owner and managing director of Essential Edge Compliance Outsourcing Services, agreed that any delay to an arbitration proceeding would logically burden the claimant. But individual brokers and brokerage firms may also have different perspectives on whether arbitration claims should be handled quickly or delayed.
“The investor wants to get it done as quickly as possible to recover what they can and move on with their lives,” he said. “The representative probably wants a resolution so they can get the ‘pending’ off their U-4 and get a resolution out there to the public. And the firm probably wants to postpone it as much as possible to protect the use of their capital.”
While Ressler said he understood FINRA’s decision to postpone face-to-face proceedings on a monthly basis near the start of the pandemic, he believes that it would now be better for the agency to give a definitive date on when such proceedings can begin again, as opposed to continual delays.
“Every month, the people who were scheduled in that month all had to reschedule again, and reschedule again,” he said. “It just clogged up the works and became an administrative headache.”
Investors were not the only critics of the lack of in-person arbitration; some brokers and their attorneys have argued against using Zoom in arbitration and disciplinary hearings, with one Utah broker saying that using video during a disciplinary hearing denied his right to a ‘fair hearing.’ Bill Singer, a securities attorney and the author of the BrokeAndBroker.com blog, also noted that defendants and their attorneys can suffer from being unable to observe people’s demeanors in-person, and by not having the ability to go off the record and confer privately.
As of now, if both the claimant (the investor) and defendant (typically a firm or broker) do not agree to a Zoom hearing, the claimants have to petition the arbitration panel for the case to move forward, and more than one-third of those requests have been denied, according to PIABA. Currently, cases can also move forward on an in-person basis if “all parties and arbitrators agree to proceed in-person based on their own assessment of public health conditions,” according to FINRA’s website.
“With the increasing availability of COVID vaccines, FINRA Dispute Resolution Services is actively reviewing conditions in its hearing locations and expects to resume in-person hearings in at least some locations in the near future,” said Rick Berry, director of FINRA Dispute Resolution Services. “The safety and well-being of parties, arbitrators, witnesses and other participants remains of paramount importance to us.”
In the letter, Meyer argued that if complex cases were able to be heard in civil court, FINRA should be able to safely conduct proceedings in situations with fewer people and in private facilities. He asked that FINRA publicize the public health criteria it’s using to determine whether to postpone hearings. Peiffer agreed, saying that the agency also needs to let cases proceed via Zoom if investors request it.
“It’s kind of simple,” Peiffer said. “If you’re going to run a dispute resolution forum, you must resolve disputes.”
