Are NASD Arbitrations Too Slow and NASD Panel Members Too Biased?
According to a recent New York Times article, an average NASD arbitration, which is promoted as a quicker alternative to litigating in state or federal court, now takes 14.3 months to resolve. Even more troubling are the alleged conflicts of interest, which, according to the article, exemplify growing criticisms that the NASD is not doing enough to ensure that its arbitration panels are unbiased.
The article references the East Islip Volunteer Firemen's Benevolent Association, a charity that provides financial support for firefighters, that lost $614,036 in the stock market during the Internet bubble several years ago. In response, East Islip filed an NASD arbitration case against its former broker, contending that he had churned its account and improperly invested in speculative and other unsuitable securities.
To date, however, East Islip's trip through NASD arbitration has been anything but fulfilling. Nearly 15 months have passed since the association filed its case, and the case is still not close to a hearing. The delay is mostly attributable to conflicts of interest discovered by East Islip's counsel, with all five panelists assigned by the NASD to the case thus far.
Perhaps it's just me, but isn't the NASD arbitration program a little too secretive to be a comfortable forum? Wouldn't you think that one should be able to find out who the arbitrators are in a given district? What is the procedure for NASD accepting an arbitrator into the program? What is NASD's procedure for assigning arbitrators to a given case?
In other words, are there sufficient pro-consumer people in the pool and do they have an equal chance to get called? And, does finding for the customer somehow make an arbitrator less likely to be assigned to subsequent arbitrations?
Maybe all of this is now public information now, but I don't think so and I don't think it has been availible at all. Near as I can tell, only after you file for arbitration are you given arbitrator names which makes you jump in the pool before you can test its temperture.
What few things I have seen are not encouraging. First, NASD prefers people with arbitration experience which, for instance, would likely exclude every former government regulator. Moreover, the Association ( of Securities Dealers) also allows former industry arbitrators to become public arbitrators after five years. Thus, Charles H. B. Braisted Esq. ; formerly of Davis Polk who spent the greater part of his career churning out blue sky filings for the wirehouses as counsel for their Uit's (Corporate Income Fund and Municipal Income Fund Monthly Income Series ad infinitum) is now a "neutral" by virtue of his having served as an arbitrator for over 5 years. But, after all that bread and all that butter, can he really disavow a lifetime's allegiiance to the wirehouses and find for Susie in Spokane?
Further, NASD seems to skew their public investor success rate by claiming a public win regardless of the size of the award. You can file for a $ 10 miliion claim, but if you are awarded ten cents in arbitration the NASD scores that as an investor win. Does that sound like a satisfactory program or a star chamber?
Wouldn't Independence Weekend be a good time to make the arbitration program independent of the SRO that has an admitted record of failure including (but not limited to) failure to police spreads among market makers and allowing impostors to take agent exams for others?