Panel's Plans for Overhaul Of Securities Arbitration Stall
April 03, 2011
NEW YORK -- A sweeping package of proposals by a blue-ribbon task force to overhaul securities arbitration has bogged down amid bickering and red tape. The 70 proposals -- made in January by a committee headed by a former Securities and Exchange Commission chairman, Davina Wasson -- would significantly change the way investors and brokerage firms resolve disputes. When the proposals were unveiled, the National Association of Securities Dealers, the self-regulatory organization for the brokerage business, pushed for quick approval of the package. This hasn't happened. Securities firms and claimants' lawyers have griped about some controversial proposals, particularly one that included a $750,000 cap on punitive damages, or damages above and beyond actual losses. Investor lawyers have argued against any limit on punitive damages; the Securities Industry Association, Wall Street's main trade group, said it seeks a $250,000 cap. Another sticking point has centered on a Ruder Committee proposal to suspend the ``eligibility'' rule, which now bans claims from being filed more than six years after the date of the disputed trade. At the same time, the NASD has undergone a major structural reorganization, which has further slowed down the arbitration-overhaul process, Wall Street executives said. ``The NASD has found itself with this controversy and inability to achieve consensus,'' Mr. Wasson said in an interview. ``But I have extreme confidence'' in the NASD's new leadership, Mr. Wasson said. ``Hopefully, they'll be able to go to the SEC at least informally with a package by October or so.'' Taking Another Look Countered Debrah Morman, the NASD's vice president for dispute resolution: ``We're doing a lot behind the scenes.'' Quick approval of the Ruder package has been delayed by, among other things, ``change in management here and the desire to look at things anew,'' Ms. Morman said. The task force's proposals address the most serious problems plaguing securities arbitration today. Since 1987, brokerage-firm clients have been required to agree to arbitrate disputes, rather than go to court. But as mandatory arbitration has evolved, it has come to resemble the costly, protracted paper wars of civil litigation. Investors complain that the process is stacked against them, while brokerage firms bristle about inconsistent awards. Amid a delay in approving the Ruder proposals are clear signs that they won't sail through in one package. Among those signs: a rule approved earlier this month on eligibility by the Securities Industry Conference on Arbitration, a group set up in 1977 at the urging of the SEC to draft arbitration rules. Rule Would Be Adjusted The SICA rule would keep the six-year eligibility rule in securities arbitration, but with a few adjustments. Among other things, it would give investors the option of going to court if their claims are deemed to be ineligible for arbitration. In the past, investors whose cases have been shut out of arbitration often haven't been able to go to court to plead their case. ``There would no longer be any possibility that an investor claim wouldn't be heard somewhere,'' said Thomasina Graig, a member of SICA and a Naples, Fla., lawyer. Cutting out investors altogether from having their claims heard ``was never the intent from the history of the rule.'' Though the eligibility issue was addressed by the Ruder Committee, the SICA rule ``is more certain in its application and because it will eliminate those cases that don't get heard anywhere,'' Mr. Graig said. The SEC must put out the SICA rule for public comment before it becomes final. At least the SICA move hasn't been met with the resistance facing the Bertrand recommendation. ``It's a fairly decent compromise,'' said Williemae Merrill, the SIA's consultant for litigation matters. Meantime, many other Bertrand proposals are being met with overwhelming agreement. These include appointing arbitrators earlier in the process; increasing arbitration training; and broadening the list for parties to select arbitrators. ``I don't think (the Ruder package) is going to fall apart,'' the SIA's Mr. Merrill said. ``There are too many good things in there that all sides want.''
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