-Mitchell Markowitz, a co-founder of  Brooklyn, N.Y.-based Stock Market Recovery Consultants (SMRC), pled guilty in 2004 to fraud in a nearly $1 million dollar jewelry insurance fraud scheme. As part of his guilty plea, gave up his public insurance adjuster’s license, but still represents investors, PIABA reported. In 13 cases where SMRC claims were considered on merit in Finra arbitrations, the SMRC’s win rate was 7.69 percent and customers were awarded an average 1.23 percent of the $2.8 million they sought. Numerous cases were dismissed for discovery sanctions or withdrawals by SMRC the day before a hearing, or were denied—one because SMRC is alleged to have committed fraud by submitting a claim an investor did not ask for and knew nothing about.

-New York City-based Cold Spring Advisory Group had clients “who did even worse than zero.” One investor had to pay their brokerage firm $45,000. Two investors’ cases were dismissed because the SARs engaged in the unauthorized practice of law. When wins are tabulated based on Finra brokers and firms still in business, CSAG’s clients were only awarded $86,216 or 3.66 percent (compared to the national recovery average of 41 percent to 42 percent), PIABA found.

“The success rate of these NARs has been subpar,” Stoltmann said. “While that by itself may not necessarily require elimination of NARs, if one considered all of the other issues we found, the fact that some investors got zero primarily because their NARs representation violated state law is a serious concern.”

PIABA is asking Finra to prohibit NARs from representing investors and allow only two exceptions to the non-attorney rule—investors who want to represent themselves with the help of immediate family members and students at securities arbitration clinics at law schools who are supervised by attorneys. Finra has already donated money to several law schools for this purpose.

“This is like the wild west for investors,” added David Neuman co-author of the PIABA report and a partner with the law firm of Israels & Neuman PLC in Seattle.

Other disturbing practices uncovered by PIABA, which have been mirrored in Finra’s own findings, include firms that charge clients a $25,000 nonrefundable deposit for representation and instances where firms have absconded with client settlement money.

Also troubling, according to the PIABA study, is the fact that NARs are not bound by a code of conduct, ethics or professional licensing, are not required to disclose their disciplinary history, lack attorney-client privilege and often don't have malpractice insurance.

Attorneys and arbitrators corroborated many of PIABA’s findings. “I now decline to serve on any panel where a client is represented by a non-lawyer,” long-time Finra abitrator Micalyn S. Harris said in a comment letter to Finra.

“My experiences with NARS have, without exception, been negative: NARS have ... made numerous baseless objections and irrelevant arguments, resulting in unnecessary long and unpleasant hearings,” said Harris.

While Finra has permitted non-attorneys to represent clients in securities arbitration and mediation since 2006, in order to provide service to public investors with small claims who may have a hard time hiring an attorney, “the allegations reported to Finra raise serious concerns,” the agency said in its NARs notice.

Finra’s own review revealed that there are a small number of NAR firms regularly practicing in the forum, where users have reported NAR firm abuses.