Indicted Lawyers, Peeping Toms, Can Wind Up Judges in Finra Arbitration

Finra arbitration is often a surprise to investors — not least of all because so many Wall Street customers have no idea that they sign away their right to court when they open an account.

But how about the surprise of learning that one of your arbitrators had been indicted? Or that he had said he was a lawyer, but wasn’t?

My June 24 column for TheStreet tells about Finra’s latest surprise arbitrator — the guy who was arrested for being a Peeping Tom. Really. You can read it here.

Wall Street Waging War Against Making Brokers Accountable to Investors

Securities and Exchange Commission Chair Mary Jo White told members of the House Financial Services Committee yesterday that there would be “many challenges” in changing the rules so that stock brokers and investment advisers are similarly regulated.

That’s an understatement. Wall Street has been on a tear for years fighting efforts to demand more of stock brokers. From my column yesterday for TheStreet:

As things stand today, brokers need only sell “suitable” investments that match a client’s investment profile. But they needn’t act as fiduciaries who are duty-bound to put clients’ interests ahead of their own, as investment advisers are expected to do.

You might think it’s a no-brainer that people doing essentially the same job in the financial industry should be subject to the same rules, but you’d be thinking wrong.

There are two fights going on related to the duties of investment advisers and brokers. There’s the one Ms. White has a say in: Changing the rules so that brokers and advisers both are expected to put their clients’ interest ahead of their own — a so-called “fiduciary duty.” And there’s another related to retirement money. The Department of Labor would like to raise the standards for people giving advice in that arena, too. President Barack Obama publicly supported the idea on Feb. 23.

The unsightly battle that has Wall Street fighting to avoid a more ethical approach to its customers is the latest reminder of the gap between the way the industry portrays itself in its marketing, and the way it actually treats its customers. From my column:

“These guys advertise like doctors and lawyers and litigate like used car salesman,” said Joseph C. Peiffer, president of the Public Investors Arbitration Bar Association, or Piaba, a group of lawyers who represent investors in securities arbitration.

You can read the story here.

Brokers Countersue to Thwart Suits by Unhappy Investors

So your broker sold you some shoddy private placements and you sued? Brace yourself, because you might get sued back.

In The New York Times today, I told the story of investors who sued their brokers for selling them private placements that tanked only to be hit with a suit from the broker. The firms’ argument: That the customers signed indemnification agreements when they purchased the securities, and thus owe the firms money for legal fees and other costs.

“The investors make representations to buy these things” and have a legal obligation to be truthful, said Vincent D. Louwagie, a Minneapolis lawyer who represented the brokerage firm Berthel Fisher.

It’s tough to evaluate the cases when the firms win. If you do business with a brokerage firm, you are stuck in private arbitration, where nobody has to explain how they came up with a decision. Suffice it to say, though, that a lot of customers will get spooked when they find out they’re threatened with a countersuit after they already have lost money. You can read the story here.