Trends in FINRA Arbitration in Massachusetts, Maine, & New Hampshire

Tuesday, January 24, 2017

According to FINRA, arbitration case filings in 2016 (3,681) were about 7 percent ahead of the number of total case filings in 2015 (3,435).  The number of customer disputes, which account for 70% of the total number of disputes filed, is up about 8%.  The number of intra-industry disputes is up about 6%.  FINRA nearly kept pace with this modest bump in filings by closing 4% more cases in 2016 than it had in 2015.  The turnaround time from filing to a standard decision in 2016 was 16.7 months. The turnaround time from filing to simplified decision was less than half that time period, 7 months.  

How many cases were filed in New England states?  According to FINRA:

Augusta, Maine -- 5
Boston, Massachusetts -- 59 
Hartford, Connecticut -- 37
Manchester, New Hampshire -- 7
Montpelier, Vermont -- 3
Providence, Rhode Island -- 8

How many FINRA arbitration decisions were issued in 2016?

Augusta, Maine -- 2
Boston, Massachusetts -- 24
Hartford, Connecticut -- 9
Manchester, New Hampshire -- 5
Montpelier, Vermont -- 1
Providence, Rhode Island -- 7

This compares with hotbeds of FINRA arbitration in San Jan, Puerto Rico (890 case filings), New York City (536 case filings), and Boca Raton, FL (287 case filings).

Statute of Limitations in Maine Arbitration

Wednesday, January 4, 2017

How long is too long to wait before a securities arbitration claim can be asserted?  There's no simple answer.  Many factors go into the mix in fixing deadlines, including (of critical importance) the nature of the claim.  Another factor is whether the claim is subject to arbitration. 

In Maine -- as in many other states -- the generally applicable deadline for filing legal claims (the statute of limitations) does not apply in arbitration.  The default statute of limitations applicable to most Maine civil actions is six years after a cause of action accrues.  14 M.R.S. §752 (“All civil actions shall be commenced within 6 years after the cause of action accrues and not afterwards … except as otherwise specifically provided.”).  Under Maine law, however, the statute of limitations does not apply to arbitration because arbitration is not an action an action at law.  Lewiston Firefighters Assoc. v. Lewiston, 354 A.2d 154, 167 (Me. 1976) (“Arbitration is not an action at law and the statute is not, therefore, an automatic bar to . . . recovery.”).  

But a claimant cannot wait forever to assert a claim.  Arbitrators may consider the equitable affirmative defense of laches, whether a claimant has waited “an unreasonable length of time” and thereby induced the other party to rely “in good faith on the other party’s non-action” and “change his position” accordingly.  Id. at 168.  A laches defense is equitable in nature and “addressed to the [arbitration panel’s] conscience.”  Id.  Its touchstone is “fairness” under the “particular factual circumstances” of a claim.  Id.  Because laches is an affirmative defense, the defendant bears the burden of proof to show that it applies.    

Why are investors hesitant to bring claims? Public Investor Foundation Video: "Trust Me!?"

Wednesday, December 28, 2016

On November 18, 2016, the Public Investors Arbitration Bar Association ("PIABA") Foundation posted a video that uses the recent Wells Fargo scandal to highlight that conflicts of interest are a root cause of many financial downturns and bad investment recommendations.  

The video features victims as well as many securities arbitration attorneys who explain why investors are hesitant to hold their brokers responsible for bad investment recommendations and fraud: 

Reason #1: Investors Blame Themselves.
Reason #2: Advertising Cultivates Trust.
Reason #3: Investors Do Not Understand their Legal Rights

The bottom line:  Investors who suspect that they have a problem should seek out an attorney in the experienced representing investors.  

Important First Circuit U.S. Court of Appeals Decision on Auction Rate Securities

Wednesday, December 14, 2016

On November 21, 2016, the U.S. First Circuit Court of Appeals issued an interesting and important securities decision involving state and federal securities fraud claims against Bank of America Securities (now known as Merrill Lynch, by merger).  The claims boils down to an allegation that Bank of America fraudulently sold tens of millions of dollars of auction rate securities ("ARS") to a large customer, Tutor Perini Corporation.

The decision provides a primer on ARS, risks associated with them, and what Bank of America knew (and when) about ARS.  The decision contains a great deal of nuanced discussion about risk disclosures, reliance, and other elements of securities fraud claims (and defenses).

Tutor Perini has a few more hoops to jump through, but should get its chance to present its claims to a jury, hopefully sometime in 2017 (in a case it filed in 2011, judging by the docket number).

FINRA Contemplates Creation of Fund for Unpaid Arbitration Awards

Wednesday, September 14, 2016

The Financial Industry Regulatory Authority (FINRA) is considering creating a fund to be used for unpaid arbitration awards. As it stands, some investors do not recover arbitration awards.

According to FINRA News, a study done by the Public Investors Arbitration Bar Association revealed that in 2013 alone a total of $62 million in awards went unpaid—about one in three awards. The Wall Street Journal found that more than $34 million of arbitration awards made to investors in 2014 remain unpaid, or 15% of the total awards granted that year. Of the awards granted to investors in the five years through 2014, almost $213 million, or 13% of overall awards, remain unpaid. A proposal aimed at solving this problem would require FINRA members to pay annual dues into a pool, amounting to about $100 per broker, to help compensate the award winners.

The fund may encourage additional arbitration claims, according to, since investors have little incentive to pursue claims that are uncollectable and securities lawyers may refuse to represent fraud victims when there is no chance of collecting from bankrupt firms or brokers.

Rising Cost of Universal and Variable Universal Life Insurance: Legal and Other Options

Sunday, September 11, 2016

Many consumers are learning the hard way that life insurance bought years ago is much more expensive and more risky than anticipated.

The Wall Street Journal reported here that a number of major insurers are "breaking a long-standing industry taboo of raising rates on life-insurance policies."   According to the Journal, tens of thousands of people have been notified that they face rising costs, from single digits to as much as 200%.  

Fine print buried in the policies gives insurers the right to raise costs, subject to certain limitations. 

That fine print typically does not, however, protect persons who sell insurance from claims of fraud or misrepresentation.  For those policies that qualify as securities, the fine print does not exempt persons selling securities from their obligations under federal and state securities law.  Nor does the fine print exempt registered representatives and financial planners from their fiduciary obligations, including to act only in the best interest of customers.

To explore the options, consumers facing bad insurance outcomes should get a second (or third) opinion from an independent insurance or financial consultant -- there are many -- who can look over the policy, information on the performance of the policy over time (so-called insurance illustrations) and consult on options. 
In doomsday scenarios, the consumer may have no real choice but to drop the policy -- allowing it to lapse at zero value.  The consumer ends up without insurance and loses all of the money paid into the policy. That result may be a red flag for bad financial advice.
Fortunately, there are a range of policy rescue options available in many circumstances, cogently summarized here.  In assessing the options, financial and tax consequences must be considered carefully.  Those options include: 
  • adjusting the policy (the policy terms are often flexible, within limitations);
  • changing to a new policy or other type of investment (e.g., an annuity);
  • surrendering (i.e., cashing out) the policy;
  • selling the policy (a life settlement)

To explore the options, consumers facing bad insurance outcomes should also consider a consultation with legal counsel experienced in pursuing insurance related legal claims

Entities Mount Legal Challenge to Labor Fiduciary Rule in Federal Court

Friday, June 24, 2016

As we posted earlier, the U.S. Department of Labor, which regulates tax-advantaged retirement savings accounts, is holding more financial advisors to a "fiduciary standard" that requires financial advisors to put clients' best interests ahead of profits.

Although the Rule will take effect in part on April 2017, with full implementation in January 2018, there are already legal challenges to it.

According to BusinessWire, various entities led by the U.S. Chamber of Commerce filed a lawsuit in federal court challenging the Department of Labor’s fiduciary rule for brokers and registered investment advisers serving Americans with Individual Retirement Accounts (IRAs) and 401(k) plans.

The CEOs of several of the above plaintiffs issued a statement claiming “support for the creation of a uniform best interest–or fiduciary–standard of customer care for financial professionals providing personalized investment advice to retail investors.” But they objected to the length and content of the Department of Labor’s rule and claimed that the Rule would limit the options and guidance provided by advisors to retirement savers.

Among other things, in the Complaint, the Plaintiffs assert that the Rule:
  • would “upend” “well-developed regulatory framework, with harmful consequences for retirement savers, small businesses, and tens of thousands of businesses . . . that provide retirement advice, products, and services,”
  • “will limit consumer choice by forcing those who need retirement investment assistance to obtain it only by entering a fiduciary relationship, and bearing the accompanying costs, or to forgo it entirely,” and that
  • “small businesses in the United States will be hampered in their ability to maintain retirement plans for their workers.“

This litigation was not unexpected, as InvestmentNews reports. The Labor Department has said it expected legal challenges over the rule and is confident that it will prevail in court.