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August 2016 - page 2

Battlefield FINRA.


I just finished reading a very well researched and well reported story in ThinkAdvisor, titled “FINRA’s ‘Total Warfare’ against brokers in Arbitration”. (May 2014)

There were some aggressive quotes in the story, like a lawyer saying he goes into the FINRA hearings prepared to “deal with the devil” and another lawyer referring to the FINRA arbitration process as a “no-win for the broker”.

If your lawyer is quoted in publications vociferously denouncing the FINRA arbitration process, I would get another lawyer. You are looking for an advocate who is confrontational to the opponent, confrontational to the “facts”, not to FINRA.

Think about it like this: Assume FINRA arbitrators are good people, trying to do the right thing. Hire an attorney who treats them with respect, or you are coming up to bat with one strike against you.

If you have great facts, and a great lawyer, you should be looking forward to your day in front of an arbitration panel.
If your facts are murky, and your lawyer just got out of law school? Well, maybe call in sick.

The problem with FINRA is that, unlike the United States courts, the Financial Advisor is basically guilty until proven innocent. On the FINRA website the very first sentence states they are “dedicated to investor protection and market integrity”. They then brag about how many millions of dollars in fines and restitution they secured on behalf of investors in 2015 ($191 million). I didn’t see any reference to how many Financial Advisors’ careers were preserved against baseless claims filed by ambulance-chasing attorneys.

Unfortunately, so many investors have been wronged by unscrupulous financial advisors over the decades that we actually have a regulatory agency of 3,600 FINRA employees and 6,000 arbitrators (independent contractors) charged with protecting investors and hearing (and ruling on) intra-industry disputes.

So, yes, FINRA arbitrators are about as warmly welcomed to your barbeque as the regional IRS agent, but they are statistically more likely to be your friend than your enemy. Since 2011 there has not been a year where more than 45% of the customer complaint cases resulted in a financial award.

If you are in arbitration under rule 13806? That means you and your old firm are arguing over money you owe on a promissory note. Now we are talking about a whole different throw-down on the playground. This is now a divorce proceeding and you’re fighting over the kids and the savings account.

There have been more than 2,500 promissory note disputes since 2012. That comes to about ten a week. I don’t know the aggregate outcomes but I can take a guess: Not good, if you are an FA who just took a big signing bonus to leave the firm you are currently under contract with.

No FINRA panel is going to feel sorry for someone who was just paid millions of dollars in cash to break a contract. You have to have really good facts to dispute a promissory note.

My lawyer has taught me a lot over my many years of working on contracts with him: no damages, no case. And even though you might have an incredible case filled with false inducements and renegs, as long as you were able to sign a lucrative new contract you will most likely lose your case under expedited arbitration rule 13806.

My advice, if you are facing circumstances that might make their way to a FINRA hearing room, is to get a great lawyer and retain them immediately. Write a check to his or her law firm as you are dialing their number. Just because you have a friend who owns a lawn care business doesn’t mean he is cutting your grass tomorrow.

And don’t rely on any attorney being paid by someone other than you if the stakes are either your CRD or your checking account. The firm’s lawyer is not your lawyer. Your neighbor who is a lawyer, is not your lawyer. And Google is not your legal advisor.

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