This section provides important background on the securities arbitration field, and resources for additional information - useful for practitioners, investors, students, and anyone who would like an all-encompassing view.
Securities Arbitration Awards come from many sources. In the past, there were a dozen arbitration facilities, which were maintained by various securities exchanges and FINRA (the securities self-regulatory organization or SRO) and shared uniform arbitration rules. Today, there is FINRA and three other arbitration providers that deserve mention: the National Futures Association, the commodities futures counterpart to FINRA; the AAA (American Arbitration Association), a non-SRO provider; and JAMS, a more recent entrant to securities arbitration.
FINRA is by far the most active securities arbitration forum; NYSE ran a distant second until it merged with NASD to form FINRA in 2007. NFA and AAA currently rank second and third in annual filings. SAC is the one source for access to the Arbitration Award Database from those various forums, past and present.
The Neutral List Selection System, or NLSS, is the selection method used by FINRA. It gives securities arbitration attorneys the ability to do an all-important check on the arbitrators who are candidates or appointees to the panels of their pending cases through disclosure procedures and by reviewing past award history.
For matters involving claims of $100,000 or more (other than in disputes between brokerage firms), the first list contains the names of 30 arbitrators – 20 Public (a Chair-Qualified list and a "Public Arbitrator" list) and 10 Non-Public. Attorneys are free to make "peremptory challenges" at this round – to "strike" arbitrators at will for any or no reason at all. One strike from either side removes that arbitrator from the list. Parties have unlimited strikes of Non-Public candidates and up to four strikes each on the two "Public" lists. In cases filed by or against customers, all parties have the option of striking all Non-Public Arbitrators and thereby selecting an All-Public Panel; they do so in about half of the cases.
The arbitrators left on the list after both sides have made their peremptory challenges will be appointed to the panel. If more than three arbitrators remain, the panelists will be selected by party rankings; if panel vacancies exist after the challenges have been exercised, and no ranked arbitrators remain, new arbitrators will be appointed by the computer system on a random basis. Once the Panel is formed, an arbitrator can only be removed by a successful "challenge for cause" – such as a strong financial or personal conflict.
Attorneys check the Award history of the arbitrators on the first round quite carefully – many consider this a "due diligence" responsibility to obtain the best panel feasible for their clients. On the second round, any new names on the appointed list require an important close look to unmask any challenges for cause that may not be apparent from the arbitrators' disclosures.
The attorney's job during the arbitration selection phase is considerably facilitated by the availability of past Awards. No matter where the Awards are obtained, they should be reviewed for conflicts, for clues to experience and leanings, and for networking opportunities to other professionals who have appeared before the candidate. Not to do this is a serious mistake. When the NLSS process is completed, you will have chosen the "judge and jury" for your case, and the Panel's decision will be almost unassailable.
The time for ranking one's arbitrators is limited and extensions of time are not generally granted. Finding the quickest and most effective way to review past Awards for 30 arbitrators can be critical. To research your Arbitrators, visit ARBchek.
For more information on other topics within the field of securities arbitration, see our list of Educational Materials & Links.
If you are an investor who has a dispute with your broker, you have made a smart decision to do your own research to locate and access the resources you need to win your case.
Choosing the right attorney is your first and most important step. The practice of securities arbitration is highly specialized and requires skills, knowledge, and experience. There are relatively few truly qualified advocates in this field. Depending upon the amount in dispute, you may wish to retain counsel – and, if you do, choose carefully. SAC can provide Award research on any attorney name (just as we do arbitrators) and guidance on attorneys in the field is available on the SEC Website and from various state bar associations.
The U. S. Government Accountability Office, formerly the General Accounting Office, has performed a number of studies of securities arbitration. How investors fare, and investors' ability to collect their awards when they win are two issues the GAO has analyzed. SAC is honored to have been selected to aid the GAO in two of its most comprehensive studies of securities/commodities arbitration.
In the first study, the GAO investigated whether a pro-industry bias existed within securities/commodities arbitration. In that study, GAO was asked by Congress to compare arbitration results from thousands of cases to litigation and to the government-operated commodities reparations system. The GAO's extensive statistical compilation and analysis failed to find any quantitative indications of pro-industry bias (though the GAO did suggest some remedial alterations to all forums).
The second study contains important statistics illuminating many different facets of the securities arbitration process. These studies are posted on the GAO's website and make valuable reading. Go to www.gao.gov and search for "securities arbitration." (GGD-92-74 and GAO/GGD-00-115).
The GAO used SAC's Arbitration Award Database for these two studies; we believe that it was the GAO's primary source of award data.
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