The Investor's Lawyer - by Georgia Securities Lawyer Joel Beck

Arbitration Cases Up

According to FINRA Dispute Resolution, arbitration case filings are up 85% through May of this year compared to the same time period lat year.  So far this year, 3,163 new cases were filed with the arbitration forum.   SmartMoney Magazine notes in an online article yesterday that while the number of cases are up, the odds are still long on beating your broker in a case in a significant way.  While the aspects of arbitration cited in their story may be true, the statistics relied upon don't address those cases that result in settlements before an arbitration hearing begins.  As in court, many cases settle before hearing to avoid the uncertainty of the outcome at hearing.  FINRA statistics show that about 75% of cases filed with the arbitration program are closed before hearing, due to settlement between the parties, settlement after mediation, or for other reasons. 

SEC Sanctions Ameriprise for Undisclosed Compensation

This week the SEC announced that it settled an action against Ameriprise Financial Services to resolve allegations that the firm received undisclosed sales compensation with connection with its sales of investments in REITS (real estate investment trusts) offered by two entities, and that it sold millions of dollars of unregistered shares of one REIT, running afoul of the securities registration laws.  The SEC's release notes that, from 2000 to May 2004, Ameriprise received about $30.8 million in undisclosed compensation in connection with the offer and sale of certain REITs to customers.  These additional payments were not disclosed by Ameriprise or the REITS in offering materials.  Robert Khuzami, Director of the SEC's Division of Enforcement is quoted in the release as stating, "Few things are more important to investors than getting unbiased advice from their financial advisers" and "Ameriprise customers were not informed about the incentives its brokers had to sell these investments."  As a result of this action, the SEC censured Amerprise, and Ameriprise will pay a monetary fine and disgorgement totaling $17.3 Million.

Before you invest, understand, as best you can, what's in it for the broker and firm making the recommendation of the security to you.

PIABA Files Petition with SEC Regarding Investor Arbitration

PIABA, the Public Investors Arbitration Bar Association, has filed a petition with the SEC, asking the SEC to eliminate arbitration rules that require that an arbitrator somehow affiliated with the securities industry sit on an arbitration panel involving customer claims against the industry in cases involving claims of damages over $100,000.  According to the petition, "Requiring investors who believe they have
been wronged by the securities industry to have claims decided by panels that must include a representative of that securities industry creates at the least the appearance of bias, if not actual bias." 
PIABA's proposal would not seek to end the industry arbitrator position all together, but to give parties the option of choosing to have a panel consisting of entirely "public" arbitrators.  PIABA's petition can be found at the organization's website here.