Securities Litigation

On June 29, 2022, FINRA released the report of its independent investigation, concluding that allegations of a “secret agreement” to avoid certain arbitrators on an industry lawyer’s cases were untrue.

The allegations were the basis for a Georgia state court’s January 2022, vacatur of an award in favor of a large bank’s brokerage unit. The ruling is pending appeal.  Based on the Georgia court’s finding that the Respondents had “manipulated the arbitration process,” FINRA’s Audit Committee commissioned an independent review. The review was led by a Lowenstein Sandler partner who previously was Chief of the New Jersey Bureau of Securities and President of the North American Securities Administrators Association.

The independent Report concluded it “did not believe there was any agreement between [the industry lawyer] and FINRA regarding the panels for [his] cases,” and that “FINRA personnel generally adhered to [its] policies and procedures.”

The underlying circumstances involved several challenges for cause arising from arbitrators’ alleged misconduct in an unrelated prior case, resulting in arbitrator suspensions, investigations, removal, reinstatement, and rancorous press coverage.

The Report contains a detailed explanation of FINRA’s arbitrator selection process and makes a few recommendations to improve its transparency.

The Report also serves as a reminder to be scrupulously judicious in arbitration administrative correspondence, lest a disappointed opposing advocate seize on language to argue forum bias.

Lowenstein’s Report may be found here.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 35 years of experience representing financial institutions in litigation, regulatory, and compliance matters.