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Investors Jump on Board All-Public Arbitration Panels

All-public arbitration panels have proved to be a popular combination for investors who’ve filed securities-related complaints with the Financial Industry Regulatory Authority (FINRA).

From February 2011 to Jan. 26, 2012, more than 76% of investors have chosen the all-public option, says FINRA, the internal watchdog of Wall Street. Prior to that time, investor cases were heard by three-person arbitration panels containing two public arbitrators and one arbitrator associated with the financial industry.

FINRA has been evaluating and compiling data on the all-public pilot program following its launch on October 6, 2008.  As of Jan. 1, 2012, 12% of the cases in the pilot program were still pending. Accordingly, data-including award data-are not yet fully complete.

Based on the data available, of the 49 pilot program awards issued by all-public panels, investors were awarded damages in 26 of 40 cases, or 65% of the time.  Another 23 pilot program awards were issued by panels with one non-public arbitrator. Investors received financial relief 13 times, or a 62% win rate, in those instances.

As reported Jan. 29 by Investments News, win rates were lower in non-pilot cases. In 2009, arbitrators awarded damages to investors in 49% of cases; in 2010, the win rate was 48%.

At the time FINRA launched the all-public two-year pilot program in October 2008, the program included 14 firms that had voluntarily agreed to participate and applied only to investor cases that did not involve individual brokers. The creation behind the all-public program was in response to criticism that the presence of an industry representative on arbitration panels created bias, as well as sympathy for the defense in cases brought by investors.

In 2010, FINRA proposed making the all-public option permanent. In February 2011, the Securities and Exchange Commission (SEC) approved FINRA’s rule change for all customer cases in which a list of potential arbitrators had not yet been sent to the parties involved in the dispute.

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