Securities Arbitration: Most Investors Perceive Securities Arbitration at SROs to be Unfair and Almost 50 Percent Find It Biased, According to a New Independent Study

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Theodore G. Eppenstein of Eppenstein and Eppenstein, securities litigation attorneys based in New York City, is a public member of SICA, the Securities Industry Conference on Arbitration. SICA has just released an independent Study that concludes most investors perceive self-regulatory organization (SRO) securities arbitration to be unfair.

Perceptions of Fairness of Securities Arbitration: An Empirical Study

Theodore G. Eppenstein is a partner of Eppenstein and Eppenstein, the New York based law firm concentrating for over 20 years in securities arbitration and commercial litigation. Ted has served for ten years as one of three voting public members of SICA, whose mission is described as a broad-based, open forum for interested constituents to discuss current issues in securities arbitration and mediation, to monitor SRO securities arbitration and mediation programs, and to provide independent feedback and to make recommendations for change to SROs on the rules, regulations, policy, procedures and operation of their dispute resolution forums. SICA is comprised of three Public Members, NASAA (the North American Securities Administrators Association), representatives of FINRA (the Financial Industry Regulatory Authority) and other SROs, and SIFMA (the Securities Industry and Financial Markets Association), among others. SEC representatives (the Securities and Exchange Commission) also attend SICA meetings.

SICA engaged two law professors, Jill I. Gross* and Barbara Black**, to conduct this comprehensive report, "Perceptions of Fairness of Securities Arbitration: An Empirical Study," which was completed with the assistance of Cornell University's Survey Research Institute (SRI).*** The survey for the study was mailed to thousands of participants in the SRO arbitration system (now almost exclusively under the control of FINRA) whose cases were filed from 2002 through 2006 and closed between 2005 through 2006. All SICA members at the time, including representatives from the NASD and NYSE (whose regulatory and arbitration departments have merged into FINRA), other SROs and SIFMA, along with three representatives of the public, participated in the review of the questionnaire to be sent to investors, broker dealers and their registered reps, and the attorneys for the parties.

The results of the Study are now in and demonstrate:

  • 63 percent of the customers who responded either disagreed or strongly disagreed that the arbitration process was fair;
  • Almost 50 percent of customers disagreed that arbitration was without bias for all parties, compared to only 19 percent who agreed that there was no bias for all parties;
  • In comparing securities arbitration to recent court experiences, 76 percent of customers responding found arbitration to be unfair;
  • When asked whether arbitration was economical for all parties, 37 percent of customers responding disagreed;
  • As for whether customers found arbitration was "simple" for all parties, more customers disagreed than agreed.

Currently, brokerage and financial service industry customers face mandatory arbitration of such disputes at FINRA, the self-regulator of the securities industry, sponsored by the industry, where a representative from the industry is required to sit as one of three arbitrators on almost all customer cases.

NASAA has issued its news release asserting in its title that the SICA study "Clearly Shows Investors View Securities Arbitration As Biased And Unfair."

Even before the Study was released, Ted Eppenstein testified on October 25, 2007 in the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Commercial and Administrative Law in support of H.R. 3010, the "Arbitration Fairness Act of 2007," a bill to ban mandatory arbitration for a broad spectrum of consumers. Ted proposed to the U.S. Congress that investors be given back their constitutional right to a jury trial, which was virtually eliminated for securities fraud cases in 1987 by the U.S. Supreme Court in the landmark case Shearson v. McMahon, in which Eppenstein and Eppenstein represented the investors. In addition, for over twenty years Ted and his firm have recommended the formation of a new arbitration alternative that is fair for public investors -- outside of the securities industry where cases are now held and where only neutrals with no industry ties can be appointed if the parties can't voluntarily agree on arbitrators -- for adjudicating customer v. brokerage and financial industry disputes.

About Eppenstein and Eppenstein:

Eppenstein and Eppenstein, in business for over 25 years, is a respected New York-based securities arbitration and litigation firm with a domestic and global practice, widely known nationally and in the international community for protecting the rights of defrauded investors and businesses, as well as for obtaining significant arbitration awards and settlements for their clients. The attorneys at Eppenstein and Eppenstein have extensive experience representing investors in actions against securities and commodities brokers and their brokerage and financial services firms, and in representing individuals and businesses in commercial litigation and in brokerage industry employment disputes. The firm has successfully represented their international clients originating from countries that include Great Britain, France, Belgium, Italy, Switzerland, Germany, Ivory Coast, Hong Kong, Indonesia, India and the Middle East, and have counseled attorneys around the world on court litigation and arbitration of brokerage fraud matters.

Ted's list of common broker and brokerage firm abuses affecting the investing public can be accessed through the internet portal to the firm's Web site, or directly on the firm's main Web site. Each one of these potential claims is fact-specific and can differ according to jurisdiction. Investors are advised to consult attorneys who have experience in this field about their potential claims. Information about securities arbitration can also be found on the firm's Securities Fraud Hotline.

Eppenstein and Eppenstein has successfully recovered millions of dollars in assets for investors, including a record-setting $46 million USD recovery in 2002. The portal to the firm's Web site is an introduction to the firm's history of successful representation of investors and businesses.

Theodore G. Eppenstein
Eppenstein and Eppenstein
767 Third Avenue, 23rd Floor
New York, NY 10017

*Associate Professor of Law, Director, Investor Rights Clinic, Pace University School of Law
** Charles Hartsock Professor of Law, Director, Corporate Law Center, University of Cincinnati College of Law
*** The full report is available at

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