Investor plaintiff lawyers are increasingly ditching industry arbitrators in favor of using all-public panels, a trend that is again raising questions about whether Finra has enough public arbitrators to meet demand.
Since 2008, when Finra began a pilot program allowing investors to choose all-public arbitration panels, about half of eligible customers bringing cases have taken advantage of that option.
But that number has trended up of late—to about two-thirds of cases from the beginning of last year through May of this year, according to Finra’s data on decided cases.
Public arbitrators have no connections with the financial industry; non-public arbitrators have either current or recent industry affiliations.
Customer cases have traditionally been heard with one non-public panelist and two public ones. But plaintiff attorneys have never liked the inclusion of what they call the “industry” arbitrator.
“There is a certain perception that the industry arbitration pool is infested with pro-securities industry views,” said plaintiff attorney Andrew Stoltmann of the Stoltmann Law Offices in Chicago.
Consumers’ increasing turn to public panelists prompted Finra on June 22 to propose adding five more public arbitrators to the list of 10 proposed panelists given to parties in arbitration.
To some observers, the move is further evidence that the regulator has found it challenging to provide enough public panelists.
A Bigger Pool
“The pool of public arbitrators needs to be dramatically expanded,” Stoltmann said.
Adding to the problem was a recent rule change that tightened the definition of “public arbitrator” to mean someone who has never had any industry affiliations at any time. Industry and plaintiff attorneys were also recategorized as non-public.