Less than 1 percent of arbitration cases on average have resulted in disciplinary actions against brokers or brokerage firms, based on interviews with five securities attorneys around the country including Steve Miller, an attorney in Denver who also serves as a Finra arbitrator.
Every arbitration claim is reviewed and may be a source of future cases, Finra's Luparello said. A single enforcement action may result from multiple arbitration claims.
Investors aren't contacted by Finra as often as they should be after filing claims, which could help its enforcement arm take faster disciplinary action since they would hear from customers directly, said Brian Levin, who focuses on securities arbitration at Miami-based Dimond Kaplan & Rothstein.
One of his clients, Coralie Marlowe, a 74-year-old retiree, filed a claim with Finra in 2009 after she and her husband lost their $50,000 investment in a structured product recommended by a UBS AG broker. The securities became almost worthless when Lehman failed in September 2008. Marlowe said she was misled by the investment's name: "100 Percent Principal-Protection Notes."
'Ill-Prepared'
"It's a lot of money for us. We were ill-prepared for retirement," said Marlowe, who lives in Calabasas, California. Finra's investigators never called her after she filed the claim, she said. Marlowe reached a confidential settlement with UBS in March.
Finra contacted about 100 investors who bought the Lehman notes out of 170 who either filed complaints or arbitration claims, said Condon, the regulator's spokeswoman.
UBS, Switzerland's biggest bank, sold $1 billion of the notes to U.S. investors like Marlowe. Finra took action against the Zurich-based bank saying it "effectively misled" some investors when selling the products about two and a half years after Lehman's failure. UBS agreed to pay $8.25 million to some investors and a $2.5 million fine. The bank was represented by Barry Goldsmith, an attorney at law firm Gibson Dunn & Crutcher LLP in New York who used to be executive vice president for enforcement at Finra's predecessor, NASD. He declined to comment.
No Waves
The $2.5 million fine of UBS is "the biggest crime of the century since Madoff," said Seth Lipner, a Garden City, New York-based attorney, who has represented more than 50 investors in Lehman notes. "They pay more for paperclips." UBS used about $9 million worth of paper last year, according to calculations based on numbers in its annual report.