What exists at the point where PIABA’s transparent self-interest in getting paid and FINRA’s historical lack of transparency about who is actually driving its agenda regarding arbitrations? This: a late December decision by FINRA to propose a rule that prohibits non-lawyers from representing – for a fee – customers in arbitrations, and an even more recent Investor Alert from FINRA that poses the question whether such customers should hire an attorney to represent them. Read together, it is quite clear that PIABA has FINRA’s ear to a degree that most member firms could only dream of.

Under current rules, customers in a FINRA arbitration have three choices when it comes to their representation: they can represent themselves, they can hire a lawyer, or (depending on the law of the state in which they live) they can hire a non-lawyer. In 2017, at the direction of the Dispute Resolution Task Force (whose members included PIABA members), FINRA solicited comments about its rule that permits NARs, or Non-Attorney Representatives, to handle arbitrations for customers. By my count, 59 comments were received. Not surprisingly, PIABA responded. Not surprisingly, PIABA hates option three, as the scary title to its whitepaper on the subject so plainly reveals: A Menace to Investors: Non-Attorney Representatives in FINRA Arbitration. The question is whether the real menace is to investors, or to PIABA, and for an obvious reason: if the customer hires a non-lawyer, then no PIABA member – comprised only of lawyers, of course – gets the potential paycheck.

I am not saying that PIABA’s comment was the only one that argued against the use of NARs; in fact, it is quite possible that the only comments FINRA received that were in favor of NARs came from the NARs themselves. See this one, for example. Anyway, FINRA has apparently heard enough, and in December determined to float a rule proposal to the SEC prohibiting NARs.

What is troubling to me is not the proposed rule itself, but more the historic degree of success that PIABA experiences whenever it brings an issue to FINRA. Unfair to customers to have an industry member sit on the hearing panel? Well, let’s eliminate them. Unfair to customers to have to defend a pre-hearing motion to dismiss? Well, let’s curtail them to nearly nothing. Unfair to customers that some respondents are unable to pay an arbitration award? Well, let’s convene a committee to explore solutions, including solutions paid for by the industry, and let’s get Congress involved.

You want solid evidence that when PIABA talks FINRA listens? Go back and look at the Investor Alert I mentioned in the opening paragraph. I was more than a bit shocked to discover that it is co-authored by “by FINRA staff and The PIABA Foundation.” In fact, there is a hyperlink right there that takes you directly to PIABA’s webpage. Well, not the PIABA webpage, but the webpage for the PIABA Foundation, which, apparently, is something devoted to “investor education” (unlike PIABA, I guess, which is devoted to suing brokers and broker-dealers). I went back through four years of FINRA articles that were written as alerts for investors, and the only other association that FINRA permitted to co-author a piece was the BBB Institute, which I presume is an arm of the Better Business Bureau. Apparently, in FINRA’s eyes, PIABA and the BBB perform the same watchdog function on behalf of investors, and both, therefore, are equally deserving of sharing FINRA’s own bully pulpit.

It is bad enough that FINRA routinely kowtows to PIABA and then disingenuously characterizes its decisions, which uniformly hurt member firms, as efforts to “level the playing field.” But, for FINRA now actually to share a byline with PIABA, or its foundation, to be precise, takes this complicity even further, to the point that one must openly question FINRA’s ability to administer this arbitral forum fairly. I don’t mind having to duke it out with opposing counsel, that’s what I do for a living. But, I, as well as my clients, expect the rules of the game to be fair, and for the entity that runs the game also to be disinterested and fair. Recent events make me wonder if my expectations in that regard are truly being met.

View Original Source
Alan Wolper

Alan focuses his practice exclusively on defending regulatory investigations and enforcement actions brought by the Financial Industry Regulatory Authority (FINRA), the United States Securities & Exchange Commission (SEC), and state securities commissioners against brokers, broker-dealers, and investment auditors. He was previously Director of the National Association of Securities Dealers (NASD) Atlanta District Office, where he oversaw nearly 600 member firms and thousands of branch offices. Alan also served as a member of the NASD’s Department of Enforcement, where he had the primary responsibility for prosecuting hundreds of formal disciplinary actions.