I attended a recent seminar presented by the Palm Beach County Bar Association Securities Law CLE committee. The seminar was titled Criminal, Civil, Regulatory and Ethics “Now What Do We Have to Worry About?” Lawyers representing individual investors, financial advisors and brokerage firms attended the seminar.
State and federal prosecutors and defense attorneys presented the securities litigation and criminal review panel. The panel discussed the rising number of securities fraud cases, victim rights, prosecution issues and sentencing guidelines. The most important advice provided was on how and when to cooperate with prosecutors in providing information and advocating for your client.
The securities litigation civil, SEC, and FINRA panel addressed the advantages and disadvantages of eliminating mandatory arbitration of investor disputes. There are two different pieces of legislation in Congress that would impact securities arbitration. The Arbitration Fairness Act of 2009 and the Consumer Financial Protection Agency Act of 2009. Both pieces of legislation address would likely eliminate mandatory arbitration of securities disputes. The fairness of mandatory arbitration is being challenged because:
- Classification of arbitrators and the use of industry arbitrator creates an actual bias or perceived impression of partiality;
- Some mandatory arbitration provisions requires the individuals waive substantive and procedural rights and requires that arbitration hearings be held in a state other than the investor’s home state;
- Arbitration has reduced and undermined the development of case law because there is limited or no judicial review of arbitrator’s awards.
While FINRA has tightened its arbitrator classification requirements, restricted the use of motions to dismiss, and required the production of certain documents, advocates for investors argue that arbitration should not be mandatory and investors should have the choice of traditional court litigation or a private dispute resolution forum such as arbitration. As a practical matter, there is a consensus among securities litigators that arbitration will continue to have a role in resolving disputes between investors and financial institutions.
Finally, the seminar ended with a luncheon discussion on ethical issues and considerations arising from the representation of multiple clients in the same dispute. From the financial institution and financial advisors’ perspective, unless there is a clear conflict of interest, generally dual or joint representation is the preferred arrangement. It is more efficient and cost effective. However, the attorney representing multiple parties must be mindful of the potential conflicts and comply with the ethics rules.