The financial advisory industry and its clients still may be struggling with the aftermath of the market crash — but investor plaintiff's attorneys are doing just fine, thank you.
The financial advisory industry and its clients still may be struggling with the aftermath of the market crash — but investor plaintiff's attorneys are doing just fine, thank you.
“We're seeing a lot of product failure cases,” said Scott Shewan, the newly elected president of the Public Investors Arbitration Bar Association, which represents plaintiff's lawyers.
“Product cases differ from [one-off] suitability cases,” he said, in that they affect all investors who buy a faulty product.
Mr. Shewan, a partner at Born Pape & Shewan LLP, began his one-year term as PIABA president last month.
His timing looks good: Year-to-date through Sept. 30, arbitration case filings at the Financial Industry Regulatory Authority Inc. totaled 5,545 — up 60% from a year earlier, according to Finra data.
Linda Fienberg, Finra's president of dispute resolution, told Barron's last month that Finra expects to see 7,500 cases filed by yearend.
There is a possibility that the number of cases will break the record set in 2003, when 8,945 cases were filed in the wake of the technology wreck, according to Finra records.
“I expect [case filings] will be up over [the] next couple years,” Mr. Shewan said.
Many cases involve dodgy bonds and preferred stocks issued by busted companies such as Fannie Mae, Freddie Mac and Lehman Brothers Holdings Inc., he said.
“There are also a lot of situations where things were sold as cash alternatives that just weren't,” such as auction rate securities and risky bond funds, Mr. Shewan said.
INDUSTRY ARBITRATORS
PIABA has also called for making the use of industry-affiliated arbitrators optional, as well as an end to mandatory arbitration.
Those efforts appear to be gathering momentum.
The Investor Protection Act of 2009, approved last week by the House Financial Services Committee, would give the Securities and Exchange Commission the ability to ban mandatory arbitration, among other things.
Separate legislation is pending in the House and Senate to prohibit pre-dispute arbitration agreements with consumers.
Separately, Finra last month expanded a year-old pilot program that lets a limited number of investors choose to have their cases heard by all-public arbitration panels.
Finra is “taking a very close look at the issue” of industry arbitrators, Mr. Shewan said. “We're very encouraged by that.”
E-mail Dan Jamieson at djamieson@investmentnews.com.
