Three Years After Dodd Frank, No SEC Action In Sight On Mandatory Securities Arbitration

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The Dodd Frank Act Requires The SEC To Review Forced Securities Arbitration But Three Years Later There Has Been No Progress; Banks Law Joins Thirteen U.S. Senators And Others Who Are Concerned

Virtually all aggrieved investors with claims against stockbrokerage firms are still required to arbitrate their disputes through FINRA

The Dodd Frank Wall Street Reform and Consumer Protection Act was enacted in July, 2010. Section 921 of Dodd Frank authorizes the Securities and Exchange Commission to enact rules to "prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors." Public Law 111-203.

Although three years have passed since Dodd Frank became law, the SEC has made no changes to forced securities arbitration. Virtually all aggrieved investors with claims against stockbrokerage firms are still required to arbitrate their disputes through FINRA. Robert S. Banks Jr., an attorney at Banks Law Office, states that, "Although the FINRA arbitration process can be fair if you understand the process, there are certain cases that ought to be heard by judge and jury. Ultimately investors and their lawyers should be able to choose the best forum for dispute resolution."

Concerned by the SEC's lack of action after Dodd Frank, a group of 15 United States senators*, led by Al Franken, D. Minnesota,wrote to SEC Commissioner Mary Jo White on April 26, 2013, urging the SEC to take action under Dodd Frank Section 921 and prohibit mandatory securities arbitration of investor disputes with broker-dealers. SEC Chair White responded in a letter dated May 23, 2013. She agreed that the mandatory securities arbitration issue was an important issue for investors, but made no promises of what would be done, or when. She said only that the SEC had solicited comments on the costs and benefits of arbitration in March 2013, and that the SEC staff was studying the issue. Both of these letters are attached for review.

The SEC has taken no action since Chair White's May 23 letter. However, Rep. Keith Ellison, D. Minn.,introduced the Investor Choice Act of 2013 (HR 2998) in the U.S. House of Representatives. If enacted, the bill would prohibit stockbroker and investment advisory firms from using mandatory pre-dispute arbitration agreements. Similar bills introduced in the Senate in earlier years have been unsuccessful. The Arbitration Fairness Act of 2007 (S. 1782), reintroduced as The Arbitration Fairness Act of 2009 (S. 931) both died in committee. And, an earlier House bill, The Arbitration Fairness Act of 2009 (H.R. 1020), met a similar fate. ________________________________________________________

  • In addition to Senator Franken, the senators signing the letter included Jeff Merkley, Ron Wyden, Patrick Leahy, Tom Harkin, Bernard Sanders, Richard Blumenthal, Richard Durbin, Sheldon Whitehouse, Mazie Hirono, Sherrod Brown, martin Heinrich, Frank Lautenberg, Robert Mendndez and Elizabeth Warren

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