Intellivest Securities, Inc. Comment On Regulatory Notice 26-06
Daniel H. Kolber
Intellivest Securities, Inc.
Please accept the following comments regarding Modernizing FINRA Arbitration
Currently, registered personnel can circumvent the requirement to submit to FINRA arbitration by simply forming a corporation and conducting their regulated activities through the corporate entity. It is common for registered representatives to brand themselves by operating through a state chartered legal entity. This entity usually has no licenses. Usually FINRA staff will deny jurisdiction over said entity and inform the parties that the arbitrators can review this decision once the arbitrators are appointed. In practice, the momentum is with the original staff denial of jurisdiction and it is an uphill battle to subject the corporation to submit to jurisdiction. Just because a registered person does not sign a U-4 does not mean they should not have to arbitrate a dispute, especially when they are hiding assets in a related corporation.
2. Frequently unregistered associated persons should have filed a U-4 but they want to stay off the radar and deceive the Broker-Dealer of their activities. Persons who for various reasons never filed a Form U-4 should not escape being subject to Finra arbitration just because they were never required to execute a Form U-4.
3. The obscenely high hourly rates for experienced litigators needs to be addressed by FINRA. In comparing FINRA arbitration with the federal system, it is difficult to conclude which system is better than the other. Some comparisons:
a) Federal upfront filing fees are much less than FINRA.
b) FINRA allows an individual other than a lawyer, except in Fla., to represent a party. Most federal judges despise pro se litigants.
This is not necessarily the case in FINRA, especially because Executive Representatives are permitted to represent parties (Rules 12208/13208). Still, arbitrators need to be better trained about "tolerating" and accommodating pro se litigants.
c) A federal judge is highly motivated to expedite matters because he is not being compensated by the time spent on a case. Arbitrators have incentives to extend hearings. Sometimes arbitrators justify extending hearings because of all the uncompensated time spent preparing for hearings.
d) Many law firms (management) look down on their attorneys acting as arbitrators because of the lost revenue due to the lower compensation costs. The bean counters at these firms often don't give a whit of all the benefits a lawyer receives by participating in FINRA arbitration and other FINRA activities for that matter. Every hour spent on FINRA is a billable hour not maximized. FINRA needs to recognize this and fix it through any number of methods. On the other hand, it is not good to have too many lawyers who use their role as arbitrators as a major component of their income. It is especially a problem for arbitrators whose main gig is running an arbitration/mediation firm. They will favor the big firms because they are a likely source of non-FINRA business. This bias should be dealt with by FINRA.
e) Too many times an arbitrator spends time on case materials that are eventually settled without a hearing. This results in arbitrators having an economic incentive to put off reading material until it is likely the case is going to hearing.
f) In federal cases, a party can publicly observe the presiding judge on his case by watching her in person on other cases and following on Pacer.gov. Level the playing field by producing video introductions of arbitrators or devise some other way folks can better learn about potential arbitrators.
4) Although the rules of evidence supposedly do not apply in FINRA arbitration, in fact, they do. An experienced litigator will cite federal or state rules. If the arbitrator knows these rules, often his ego will require him to show off his knowledge and the rule will apply. A simple fix would be to create a manual comparing introduction of evidence in a federal case versus "how easy" it is in FINRA arbitration.
5) Arbitrators should have increased powers to sanction aggressive lawyers. In federal court, the judge will be able to take action against so-called Rambo litigators. It is rare for this to happen in FINRA arbitration.
6) FINRA should stop pretending that the FINRA staff are simply administrative support folks. Most of them are attorneys and all of them have tremendous influence over arbitrators who are not trained jurists. The staff should be called Attorney Advisors and should be recognized as key participants in the process rather than adjuncts. These attorneys and paralegals should be compensated better than they are currently.
7) FINRA should amend their process when it comes to confirmation of awards. Often times the arbitrator's reputation is called into question when an award is challenged. Currently, FINRA leaves their arbitrators to fend for themselves, perhaps on the assumption that since the arbitrator is not actually a party to the confirmation/vacate hearing, there is no need for FINRA to intervene. This is wrong because an arbitrator whose decision is being challenged, for bias for example, needs FINRA support not abandonment. FINRA needs a special unit to intervene in cases where there is a motion to vacate the award.
8) FINRA needs to better train all personnel regarding the complex rules involving enforcing orders to appear. FINRA should have a special unit to handle enforcement of orders to appear. Too often, lawyers will tell their clients to simply ignore orders to appear, especially non-registered people.
9) FINRA should stop the Pyrrhic Victories that often arise when the award is won but it ends up putting the losing BD or party out of business. There are several ways this problem can be fixed other than expelling losing parties from FINRA for failing to honor awards.
10) A FINRA task force should examine the current use of law student clinics being utilized in arbitration. In theory, it is wonderful, in practice not so much. If it is really gong to make a difference, it should concentrate on class actions. Right now they create a false image that people have remedies that are really available.
11) FINRA should fix the myth that an arbitration has no precedential value. FINRA publishes the Awards so obviously litigants are going to use these information in their cases. This becomes especially important as FINRA uses AI.
12) FINRA should fix the situation where panels often assess the majority of fees against the Member Firm even when the Firm wins. This results in the losing party arguing that it actually won because they point to the imbalance of assessed fees. I studied this for a period of time and determined that in a six month period there were dozens of cases where the BD was assessed the majority of fees even though the BD won the case.
13) There needs to be a fresh look at arbitrator training. The first step is to recognize that the arbitrators are more like juries than judges, this will help solve the "impostor" syndrome. In addition, as mentioned above, within most law firms a FINRA arbitrator is not given the respect she should get because so much focus is on how much money the attorney is bringing in. On the other hand, some arbitrators are using FINRA arbitration as a main component of their income. Some balance must be created. Just as the eager juror is not selected, serving as an arbitrator should either be prestigious or fairly compensated, unfortunately currently neither is the case.
14) There are several ways to deal with abuse of process. Until "Rambo" litigators get hit in their pocketbook, nothing will change. One fix would be for FINRA to videotape all proceeding. FINRA should have a unit that follows up on abuses. Keep in mind there are no statutes of limitation with respect to Bar complaints in most states.
15) FINRA rules regarding explained decisions should be amended. Arbitrators should be encouraged to explain their decisions notwithstanding that this may increase the number of motions to vacate. Proper training should fix that.
16) Awards online are a wonderful tool. However, it is a difficult process to get stipulated awards online. In addition, cases that are dismissed before awards are not currently published and they should be. However, the synopsis at the beginning of the published award should be improved. Currently, there is simply a litany of claimed causes of action. A simple narrative of each case would be appreciated. Also, there are so many expungement cases that at the heading it should state in bold "EXPUNGEMENT CASE" or they should be grouped together, maybe on a particular day of the week.
Thank you for this opportunity to comment. FINRA should be applauded for its efforts to improve its arbitration process. Its implementation of the recommendations of the Report of the Independent Review of FINRA's Dispute Resolution Services by Lowenstein Sandler in 2022 proves FINRA's commitment to reform. Thank you for protecting our financial markets, the backbone of the most powerful economy in the world. FINRA is the most important group of people protecting our democracy, even more important than the SEC and the military.
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Intellivest Securities, Inc. Comment On Regulatory Notice 26-06
Please accept the following comments regarding Modernizing FINRA Arbitration
2. Frequently unregistered associated persons should have filed a U-4 but they want to stay off the radar and deceive the Broker-Dealer of their activities. Persons who for various reasons never filed a Form U-4 should not escape being subject to Finra arbitration just because they were never required to execute a Form U-4.
3. The obscenely high hourly rates for experienced litigators needs to be addressed by FINRA. In comparing FINRA arbitration with the federal system, it is difficult to conclude which system is better than the other. Some comparisons:
a) Federal upfront filing fees are much less than FINRA.
b) FINRA allows an individual other than a lawyer, except in Fla., to represent a party. Most federal judges despise pro se litigants.
This is not necessarily the case in FINRA, especially because Executive Representatives are permitted to represent parties (Rules 12208/13208). Still, arbitrators need to be better trained about "tolerating" and accommodating pro se litigants.
c) A federal judge is highly motivated to expedite matters because he is not being compensated by the time spent on a case. Arbitrators have incentives to extend hearings. Sometimes arbitrators justify extending hearings because of all the uncompensated time spent preparing for hearings.
d) Many law firms (management) look down on their attorneys acting as arbitrators because of the lost revenue due to the lower compensation costs. The bean counters at these firms often don't give a whit of all the benefits a lawyer receives by participating in FINRA arbitration and other FINRA activities for that matter. Every hour spent on FINRA is a billable hour not maximized. FINRA needs to recognize this and fix it through any number of methods. On the other hand, it is not good to have too many lawyers who use their role as arbitrators as a major component of their income. It is especially a problem for arbitrators whose main gig is running an arbitration/mediation firm. They will favor the big firms because they are a likely source of non-FINRA business. This bias should be dealt with by FINRA.
e) Too many times an arbitrator spends time on case materials that are eventually settled without a hearing. This results in arbitrators having an economic incentive to put off reading material until it is likely the case is going to hearing.
f) In federal cases, a party can publicly observe the presiding judge on his case by watching her in person on other cases and following on Pacer.gov. Level the playing field by producing video introductions of arbitrators or devise some other way folks can better learn about potential arbitrators.
4) Although the rules of evidence supposedly do not apply in FINRA arbitration, in fact, they do. An experienced litigator will cite federal or state rules. If the arbitrator knows these rules, often his ego will require him to show off his knowledge and the rule will apply. A simple fix would be to create a manual comparing introduction of evidence in a federal case versus "how easy" it is in FINRA arbitration.
5) Arbitrators should have increased powers to sanction aggressive lawyers. In federal court, the judge will be able to take action against so-called Rambo litigators. It is rare for this to happen in FINRA arbitration.
6) FINRA should stop pretending that the FINRA staff are simply administrative support folks. Most of them are attorneys and all of them have tremendous influence over arbitrators who are not trained jurists. The staff should be called Attorney Advisors and should be recognized as key participants in the process rather than adjuncts. These attorneys and paralegals should be compensated better than they are currently.
7) FINRA should amend their process when it comes to confirmation of awards. Often times the arbitrator's reputation is called into question when an award is challenged. Currently, FINRA leaves their arbitrators to fend for themselves, perhaps on the assumption that since the arbitrator is not actually a party to the confirmation/vacate hearing, there is no need for FINRA to intervene. This is wrong because an arbitrator whose decision is being challenged, for bias for example, needs FINRA support not abandonment. FINRA needs a special unit to intervene in cases where there is a motion to vacate the award.
8) FINRA needs to better train all personnel regarding the complex rules involving enforcing orders to appear. FINRA should have a special unit to handle enforcement of orders to appear. Too often, lawyers will tell their clients to simply ignore orders to appear, especially non-registered people.
9) FINRA should stop the Pyrrhic Victories that often arise when the award is won but it ends up putting the losing BD or party out of business. There are several ways this problem can be fixed other than expelling losing parties from FINRA for failing to honor awards.
10) A FINRA task force should examine the current use of law student clinics being utilized in arbitration. In theory, it is wonderful, in practice not so much. If it is really gong to make a difference, it should concentrate on class actions. Right now they create a false image that people have remedies that are really available.
11) FINRA should fix the myth that an arbitration has no precedential value. FINRA publishes the Awards so obviously litigants are going to use these information in their cases. This becomes especially important as FINRA uses AI.
12) FINRA should fix the situation where panels often assess the majority of fees against the Member Firm even when the Firm wins. This results in the losing party arguing that it actually won because they point to the imbalance of assessed fees. I studied this for a period of time and determined that in a six month period there were dozens of cases where the BD was assessed the majority of fees even though the BD won the case.
13) There needs to be a fresh look at arbitrator training. The first step is to recognize that the arbitrators are more like juries than judges, this will help solve the "impostor" syndrome. In addition, as mentioned above, within most law firms a FINRA arbitrator is not given the respect she should get because so much focus is on how much money the attorney is bringing in. On the other hand, some arbitrators are using FINRA arbitration as a main component of their income. Some balance must be created. Just as the eager juror is not selected, serving as an arbitrator should either be prestigious or fairly compensated, unfortunately currently neither is the case.
14) There are several ways to deal with abuse of process. Until "Rambo" litigators get hit in their pocketbook, nothing will change. One fix would be for FINRA to videotape all proceeding. FINRA should have a unit that follows up on abuses. Keep in mind there are no statutes of limitation with respect to Bar complaints in most states.
15) FINRA rules regarding explained decisions should be amended. Arbitrators should be encouraged to explain their decisions notwithstanding that this may increase the number of motions to vacate. Proper training should fix that.
16) Awards online are a wonderful tool. However, it is a difficult process to get stipulated awards online. In addition, cases that are dismissed before awards are not currently published and they should be. However, the synopsis at the beginning of the published award should be improved. Currently, there is simply a litany of claimed causes of action. A simple narrative of each case would be appreciated. Also, there are so many expungement cases that at the heading it should state in bold "EXPUNGEMENT CASE" or they should be grouped together, maybe on a particular day of the week.
Thank you for this opportunity to comment. FINRA should be applauded for its efforts to improve its arbitration process. Its implementation of the recommendations of the Report of the Independent Review of FINRA's Dispute Resolution Services by Lowenstein Sandler in 2022 proves FINRA's commitment to reform. Thank you for protecting our financial markets, the backbone of the most powerful economy in the world. FINRA is the most important group of people protecting our democracy, even more important than the SEC and the military.
Respectfully submitted,
Daniel H. Kolber
Executive Representative
Intellivest Securities, Inc.