The fairness of FINRA’s arbitration process is being called into question as lawyers and clients consider legal action to obtain new hearings or revisit decisions amid allegations that a former arbitrator lied about being an attorney.
“It’s a travesty of justice that will go unrectified,” says Shustak, who has himself served as an arbitrator.
FINRA acknowledges that Frank was dropped last year after the agency learned that he was not a lawyer, but a FINRA spokeswoman declined to discuss the implications.
The revelations came to light when an attorney,
Frank disputes the allegations and maintains that he was at one time a member of the
There is a
A spokeswomen for the State Bar confirmed in an email that “Every person who has ever been licensed in
The industry regulator does not require its arbitrators to be attorneys. Nonetheless FINRA has an obligation to vet applicants thoroughly, argues
“They are obviously not doing their due diligence before making people arbitrators,” Doss says. “From the investors’ point of view, they are forced into this process. They have to pay a filing fee to participate, actually do the arbitration, and they deserve better.”
“Of course, those hearings involving him, and also any arbitration which had him on a panel, have been tainted in a way no court would permit,” Fogel said in an email.
Having a lawyer on the panel, particularly as the chair, affects how one approaches a case, says
FINRA’s critics say that the arbitration process is flawed, and that investors should have the option of taking their case to court in lieu of arbitration.
“This highlights some fundamental flaws in the FINRA system,” says
Legal experts say it’s not clear whether these cases can be reopened, since the statute for limitations on vacating a decision is 90 days. FINRA arbitration awards are rarely, if ever, vacated after the statute of limitations has passed, experts say.
Arbitrators have immunity for civil liability, but that does not apply in situations of fraud or corruption, explains
"I don't think it can be argued that his lying about his credentials would have affected these rulings, especially since FINRA does allow non-lawyers to serve as arbitrators," says Colombo, who prior to 2006 supervised regulatory inquiries at
But for many lawyers and their clients, the impartiality of arbitrators has been called into question.
“If I now have to go into arbitration, I am going to be very worried that my arbitrator won’t be impartial. They can’t prove to me that he will be,” Gold says.
Despite the legal hurdles, a few clients and lawyers plan on taking action. Parviz Paul Oshideri, a
“I would love to because I lost all my savings,” Oshideri says.
For some, the revelations about Frank likely have come to light too late.
The Desmonds, having died, can’t try to reopen the case, Monteleone says. “All we were looking for was a clean hearing to say this is what the stock broker did,” he says. “We never got our day in court.”
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