Data from 2012 FINRA arbitration proceedings shows what investor advocates long suspected: all public arbitrators are more beneficial to investor claimants. In particular, investor claimants were awarded damages in 49% of the cases that were heard and decided by panels of three public arbitrators last year, versus 45% in cases where one of the panelists had industry affiliations, according to new FINRA data. In 2012, the first full year of FINRA’s permanent all public panel option, there were 99 cases decided by all public panels. In 2011, only 13 cases were heard by all public panels. The Optional All Public Panel rule went into effect in February 2011, following a three-year Pilot Program that gave investors filing an arbitration claim against participating firms the option of choosing an all public panel.
FINRA has two classifications of arbitrators: public and non-public. Public arbitrators are select individuals who are not required to have knowledge of the securities industry. Non-public arbitrators have a more extensive securities industry background. In January 2011, the SEC approved a rule change allowing customers in FINRA arbitration cases that proceed with three arbitrators the option to choose between two panel selection methods – the Optional All Public Panel rule, or the Majority Public Panel rule. FINRA Rules provide that “If the amount of a claim is more than $100,000, exclusive of interest and expenses, or is unspecified, or if the claim does not request money damages, the panel will consist of three arbitrators, unless the parties agree in writing to one arbitrator.”
Customers choose the panel selection method; neither the firms nor associated persons can choose the selection method. The new Optional All Public Panel rule provides for an all-public arbitration panel or a majority public panel depending on how the parties exercise their strikes. By striking all of the arbitrators on the non-public list, for example, any party can ensure that the panel will have three public arbitrators.
“Our review of these awards indicates that law firms with more experience in the forum generally choose all-public panels,” said Finra spokeswoman Nancy Condon as reported by Investment News.
Prior to the rule change, FINRA ran a Pilot Program between October 2008 and January 2011. During the Pilot Program, 43 cases were decided by all public panels, and damages were awarding in 27 cases, or 63% of the time. In contrast, investor win rates where an industry arbitrator was involved were 45% and 47% in 2009 and 2010, respectively.
Sonn Law Group has found that all public panels are beneficial to their investor clients, and routinely elects an all-public panel for their cases. Sonn Law Group specializes in representing investors (not brokerage firms) in securities arbitration and investor fraud cases throughout the country. Sonn Law Group has filed hundreds of FINRA claims for investor losses, and achieved numerous successful settlements and trial victories for its clients. If you have investment losses, and would like to learn more about a possible claim, please call us at 844-689-5754 or complete our “contact form.”