STOCKMARKET WATCH -- Wednesday, 11 July 2012

[Demeter]

7. Wall Street’s Captive Arbitrators Strike Again

http://www.bloomberg.com/news/2012-07-08/wall-street-s-captive-arbitrators-strike-again.html

A set piece of Voltaire’s 18th century masterpiece, “Candide,” is a scene in which the British, after losing a battle, execute one of their own admirals “pour encourager les autres.”

The analogy may be a bit heavy-handed, yet in many ways it fits what Finra -- the Financial Industry Regulatory Authority, Wall Street’s self-regulatory organization -- did to three arbitrators who, in May 2011, had the temerity to find in favor of a customer in a securities arbitration against Merrill Lynch, the nation’s largest brokerage and a unit of Bank of America Corp. After awarding the estate of the customer more than $520,000 -- a large amount by arbitration standards --Finra heard from unhappy Merrill executives and fired the arbitrators, two of whom had many years of experience.

“You mete out justice, and then you get slapped in the face,” one of the fired arbitrators, Fred Pinckney, told me in an interview.

The matter began in December 2009, after Robert C. Postell, of Alpharetta, Georgia, and his wife, Joan, filed an arbitration claim against Merrill Lynch for more than $640,000 plus attorney’s fees. Postell, who had a successful automotive- safety-equipment business, claimed that his Merrill broker failed “to adequately monitor” his accounts, according to a publicly available copy of the Finra arbitration summary. The Postells also asserted claims of “breach of contract” and “breach of fiduciary duty” against Merrill. Not surprisingly, the brokerage, through its attorney, Terry Weiss, of Greenberg Traurig LLP, in Atlanta, denied the Postells’ claims.

Finra Waiver

Anyone who works on Wall Street or has a brokerage account must agree, from the outset, that any financial claims made against their employer or broker will be adjudicated not in the courts but in an arbitration process overseen by Finra, a private organization that derives the bulk of its $1 billion in revenue from the Wall Street companies that are its members. This upfront agreement by millions of Americans to submit to a Finra arbitration process -- which I experienced first hand in 2003-2004 -- constitutes one of the largest ongoing abdications of legal rights in the U.S., and nobody seems to be bothered enough to rectify it. (To make matters worse, Mary Schapiro, the chairman of the Securities and Exchange Commission, was previously head of Finra, whose board awarded her a $9 million bonus when she left that post in January 2009.)

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