FINRA allows for special procedures for big cases.

FINRA announced this week the establishment of a pilot program for cases involving $10 million dollars or more. If your claim is $9.5 million, you’re not out of luck. The “pilot program” is available to any case, but they are targeting $10 Million dollar cases and above.

Basically, the new procedures will give the parties (inmates) the ability to make their own rules (keys to the asylum). FINRA is making a large assumption — that lawyers on opposite sides can mutually agree on anything other than the other lawyer is a nitwit. If lawyers are so agreeable, why did FINRA have to amend its arbitrator selection procedures to make sure that at least two arbitrators remained on the list after the parties exercised their strikes? Because most lawyers in “litigation mode” are disagreeable and uncooperative.

I know I’ve mentioned this before, but there was a time when an arbitration over $250,000 warranted five arbitrators. It was like being in front of an appellate bench (although most in Florida are 3 judges). Now FINRA is allowing the parties to change almost any rule.

And FINRA will allow all those discovery vehicles that courtroom-oriented lawyers love so much — interrogatories, admissions and depositions. I can hear the slobber drooling off of the faces onto the desks of hourly lawyers all across the country. Now lawyers can’t be sanctioned for outrageous discovery conduct (because arbitrators don’t have that authority), so they can act like spoiled children in a sandbox with impunity. Cynic? Me? No.

The good news – parties can only enter into the pilot program upon consent of all parties. The bad news – once there is agreement, and it looks like it was a bad idea, a party can’t back out. All or nothing folks.

So who will sign up for this? My guess is it will be large institutional claimants and respondents who are represented by large institutional law firms. Let’s face it, most of those firms aren’t really comfortable in arbitration anyway. Now they can assign the squadron of young, under-utilized, lawyers to all the menial tasks that they were missing out on when a case was in arbitration.

Basically, it appears that the only the thing that may end up missing from this is a judge and jury. It will be interesting to see how this program plays out.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Florida’s rule disqualifies stockbrokers with old offenses.

In May of last year, the State of Florida amended its registration rules regarding the criminal histories of stockbroker applicants. The amendment assigns year values for specified crimes. Those year values then disqualify an applicant according to its terms.

For instance, if an applicant has committed a specified felony, the disqualification period is for 15 years from the date of the plea or finding. If other crimes are committed at different times, then additional 5 year periods can be tacked on. It appears that the entire disqualification period can only be reduced by a maximum of 3 years.

So what this means is that the felony drug possession as a senior in college could delay a new broker’s application for 15 years and could possibly be used to deny registration anyway. Further, it appears that a new U-4 filing will give the State of Florida a new shot at currently registered representatives. So brokers changing firms with otherwise ancient and forgotten criminal histories could end up with big problems.

The interesting thing is that a broker who is already registered and has a specified crime in his/her past would not lose his/her license. It is only on the submission of a new U-4 that this new part of the registration rule would apply. This could make for some very uncomfortable situations.

So the most important thing for currently registered brokers to keep in mind is that, if there is a felony in their past, they need to keep this rule in mind if they are thinking about changing firms. And if there is a question about any potential disqualification, they need to get help in interpreting the rule very carefully.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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SunTrust television commercial makes me laugh.

OK, so I’m easily entertained. I still laugh when David Letterman has the sneezing monkey.

But this commercial caught my eye. In the wake of mergers of banks, both voluntary and shotgun, SunTrust‘s message rings true. They just better hope that they don’t merge and end up with the same problem Chase Investment Services has had in litigation.

Still keeping my old family, I’m Marc Dobin.

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Chase Investment Services loses another non-solicitation arbitration

Loyal readers (who may be wondering if I had lost interest in the blog) will recall that Chase Investment Services lost an arbitration to Morgan Keegan and Todd Rozzo in March of this year. Chase tried to enforce a contract against a former WaMu broker, Rozzo, and his new employer, Morgan Keegan. My firm represented Morgan Keegan.

It turns out that there was a very similar case in Seattle, Washington. Chase, again, went for an injunction. Chase, again, acted as if the world was going to end if the brokers were allowed to talk to their clients. Chase, again, initiated an arbitration against the former brokers. And Chase, again, lost the arbitration.

Maybe Chase will get the message that I have detected. Absent some horrific set of circumstances, such as bad acts by the departing brokers or raiding, arbitration panels do not get excited about the run-of-the-mill changing of jobs. For Chase to behave like a child complaining about not getting his/her way is just bad business. Brokers change firms. Chase needs to get over it.

This does not mean that, in the right set of circumstances, an arbitration panel won’t award damages. It simply means that it has to be something more egregious than simply changing jobs. Having the manager and several brokers leave at the same time could be sufficient. Deleting data on a computer system could be sufficient. There are any number of bad acts that could lead to liability. But if a broker leaves “clean”, the likelihood of a firm prevailing in an arbitration is pretty slim.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Chase Investment Services loses arbitration to Morgan Keegan

This is fun to talk about, because my firm (in the form of yours truly) represented Morgan Keegan. The firm was named in an arbitration by Chase Investment Services, Inc. because a former Washington Mutual investment representative left the firm just before Chase Investments and WaMu Investments merged in May 2009. Chase thought he shouldn’t have contacted his customers.

Chase filed for an injunction and an arbitration. The final FINRA arbitration hearing took place in early March. The result was a complete victory for Morgan Keegan and the broker, Todd Rozzo. In fact, Rozzo was awarded $50,000 in damages for a wrongful injunction and custody of notebooks he had created while at WaMu. Kudos to my co-counsel, Chuck Dalziel and Stuart Sims, from Brock, Clay in Marietta, Georgia. These guys were a lot of fun to work with, and Chuck and I go waaaay back.

One part that was particularly fun was that I got to refer to one of my favorite television commercials. It’s called Washington Mutual “head scan”.

Just remember the phrase – “I hate it when these things don’t scan.”

You might recognize Jane Lynch from Glee and Tim DeKay from White Collar.

That’s the joyous view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Securities America wants it both ways with Federal injunction strategy.

I am outraged. It’s no secret that I’m not a big fan of Securities America, the hapless offspring of American Express Financial Services (now Ameriprise). In fact, I’m kind of embarrassed that I own Ameriprise stock, if for the only reason that it owns Securities America. There may be other reasons, but I haven’t looked at the company that closely lately.

Those of you who know me will recall that, with my then-partner, my law firm obtained an arbitration award against Securities America for $5.4 million several years ago. In that case, the firm tried to assert, with a straight face, that a broker using a stolen identity was properly registered. The arbitrators disagreed.

This time around we have Medical Capital Holdings and Provident Royalties. Both of these companies turned out to be frauds and Securities America was a huge seller of these two products. The one at issue in the Federal case is MedCap.

Securities America is desperate. Even though the company is owned by a huge financial services company, it is claiming that there is not enough money in the pot to fund a class action settlement and pay potential arbitration claims. So the company asked a judge to stop the arbitrations and now is asking the same judge to stop state regulators. (See Suzanne Barlyn’s article here.) Huh?

I was outraged when the judge halted the arbitrations. To me it was the height of hypocrisy to tell clients that they must participate in a class action. Yet Securities America would not allow a class action arbitration I am certain. Further, if a client brought an individual action against the company in court, it’s first reaction would likely be a motion to compel arbitration of the claims. Then they would ask a class-action judge to stop the arbitration? How is that fair or logical.

Pick your venue, boys. Class action or arbitration. But you don’t get the choice of stopping an arbitration (or regulator) in favor of the class action. If you don’t have the money, then file for bankruptcy and let everyone pick over the carcass. I’m betting there’s a good financial reason not to do it.

I have clients on both sides of the arbitration aisle. What I’m looking for is consistency in the application of laws regarding arbitration. I don’t see it here. Once again, Securities America seems to be making up the rules in its favor as it tries to deal with a problem. Good luck with that.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Marketwatch article by Suzanne Barlyn describes use of BrokerCheck system

The FINRA BrokerCheck system has been around for years. “In the old days” it was a manual system. A customer called a toll-free number and asked for the broker’s information. The information was mailed to the customer and a copy was sent tot he brokerage firm. This was good for the customer (kind of) and a nightmare for the brokerage firm since they were receiving many copies of requests for which they had no use.

Then came the internet. Clients were able to request information over the internet, without human intervention. At the same time, it meant that a competitor could steer a client to BrokerCheck to look at the report of another broker the client was considering. This still happens today. BrokerCheck reports were, and still are, limited in scope. But changes have been made.

As Suzanne Barlyn reports here, the BrokerCheck system has changed again. There is more depth to what is reported and former brokers with certain “marks” on their record will remain on the system even after the passage of two years’ time (the old cutoff). This will allow the investing public to check out the unregistered investment counselor’s background and the reason why he/she is not with a brokerage firm.

Overall, disclosure is good. My position on U-5 filings is stated in the article – specifics are generally much better than generalities, provided they are true.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida.

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FINRA changes arbitrator list – And then there were two?

In case you don’t normally handle FINRA securities arbitrations, after the Statement of Claim and Answers are filed, the parties receive a list of arbitrators. The classification of arbitrators, public vs. non-public (these used to be called industry), is usually a total of sixteen choices in public (broken down into two 8-person lists) and one 8-person non-public list. Each party was entitled to four “peremptory” strikes, forcing out up to four people “just because”. The remaining names were ranked from 1 through, up to, 8 depending on the number of strikes.

Once FINRA received the list, the ranked arbitrators common to both lists were combined and the rankings are added up. The arbitrator with the lowest combined ranking (meaning most desirable from the combined list) is contacted first, then the next, and so on. But if both parties exercised all of their strikes, then it was possible that there were no names in common and FINRA would have to select names, on its own, at random. The parties, theoretically, then have no input on who the next two arbitrators are.

This selection process will change on September 27, 2010. Under the new rules, which you can read about here, each list will have groups of 10, not eight. However, the number of party strikes will not increase. This could lead to some unintended consequences.

For example, let’s say that the Claimant and Respondent use each of their strikes on four separate people, striking a total of eight. This leaves two people, who could have been ranked as numbers 5 and 6 by both parties. So the parties end up with their least desired arbitrator candidates (which they could not strike). While this may end up removing an administrative burden on FINRA, I’m not sure the parties are going to be happier.

On the other hand, my own experience led me to believe that the previous procedure was not so “random.” It seemed to me that the many of the same arbitrators would get the call as an off-list choice. But that could just be my perception.

So now, we will likely be assigned a name that we know, but not necessarily one that we like. It is rare that both sides agree on which arbitrator candidates they like, so it will be interesting to see how this new process changes the dynamics of list selection.

And finally, here’s another twist. When multiple parties are represented by the same lawyer, they get one set of strikes – four per listing of 10. When multiple parties are represented by separate counsel, each lawyer gets a set of strikes, four per lawyer per listing of 10. If both the broker and the firm are named respondents, then the entire list can still be stricken. A loophole? Perhaps.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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