The Financial Industry Regulatory Authority (FINRA) has just launched a pilot program specifically designed for large arbitration cases involving claims of $10 million or more, though it can be used in any case, regardless of size. The program enables parties to customize the administrative process and allows them to bypass certain FINRA arbitration rules. In order to be eligible, all parties will have to agree to participate in the program, to be represented by counsel, and to pay for any additional costs of the program – which happen to include an additional $1000.00 surcharge for each separately represented party, payable to FINRA.
The way we read the announcement, FINRA has simply decided that for a price, it’s willing to surrender much of its authority over how arbitration will be handled. For instance, the parties can agree to have interrogatories and depositions, to hire non-FINRA arbitrators, to create their own procedures for exchanging information, and to use any facilities they choose for a hearing. So, you ask, why not just skip the middleman and avoid paying FINRA? Because you can’t. FINRA’s a monopoly and it wants a cut.
Our view of this program? Because it requires agreement by all parties, it will almost never be used.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA with over 20 years of representing individuals who have lost money due to the negligence of investors and brokers.
Hugh is a past President of the Public Investors Arbitration Bar Association (PIABA), an international legal association composed of practitioners who represent investors in disputes with the securities industry. He was also just re-elected to PIABA’s Board of Directors, where he has served as a director since 2011.
