SEC Drafts Rules For Mediation

Earlier this year, the Securities and Exchange Commission (SEC) approved a Financial Industry Regulatory Authority (FINRA) proposal to merge its dispute resolution subsidiary, FINRA Dispute Resolution, Inc. into and with its regulatory subsidiary, FINRA Regulation, Inc. FINRA continues to operate a dispute resolution program, now as a separate department within FINRA Regulation under the name of the Office of Dispute Resolution. Now, the SEC has proposed draft rules for mediation specified in the Corporation Code and other special laws it implements. The guidelines also apply to intra-corporate issues voluntarily brought to the commission by the parties concerned, provided the disputes have not yet been lodged in court. The SEC has the responsibility to determine the aspects of the dispute that can be mediated and those that cannot. Despite the passage of the Securities Regulation Code (SRC), which transferred the jurisdiction over intra-corporate cases to the regular courts, the SEC has retained its power to handle residual cases. The mediation rules are available for comment until May 25, 2016, and do not cover administrative cases including petitions for cease-and-desist orders for violations of the Corporation Code, the SRC, and other laws and circulars issued and implemented by the commission, which are subject to administrative sanctions. See more at-- http://www.finra.org/industry/notices/16-04#sthash.n4dxbJBY.dpuf and http://bit.ly/1SQzpjT

Bogus Arbitrator Credentials Call Awards Into Question

Some forty Wall Street securities arbitration cases dating back more than fifteen years may be compromised because an arbitrator allegedly lied about being a lawyer. FINRA, the Financial Industry Regulatory Authority that runs a mandatory arbitration forum where brokerages and investors resolve their disputes, removed the arbitrator who said he was a lawyer and a member of the bar in several states, when he was not. The former FINRA panelist claimed he was a "lawyer" (putting the word in quotes himself), but admits he was never licensed in Florida or New York, though he maintains California's bar must have lost his records. FINRA has reportedly been trying to improve perceptions of fairness to investors in its arbitration system. It also recently bolstered measures to police its arbitrators. Nonetheless, this news is likely to be more ammunition for mandatory arbitration clause critics. This revelation raises questions about whether the parties might attempt to overturn those decisions. It is unclear whether an arbitrator's fraudulent misrepresentations could give rise to new hearings. Apparently, a lawyer by the same name has informed the state bar association and the California attorney general's office about the matter, in the event the arbitrator appropriated a background other than his own. See story here-- http://reut.rs/1jAuv9S

Court requires Citi and UBS to arbitrate auction rate securties case

Brokerages UBS AG and Citigroup must arbitrate a healthcare organization's $234 million auction rate securities claim in a dispute over who a "customer" is for purposes of securities arbitration, according to the U.S. 4th Circuit Court of Appeals. The claimant, Carilion, a network of hospitals in Virginia, was not found a "customer" of either firm under the Financial Industry Regulatory Authority's (FINRA) securities arbitration rules. The court ruled Carilon bought "commodities or services" from a FINRA member that were regulated by industry rules. Carilion's decision to issue auction rate securities was based on advice from UBS and Citi, who were involved in purchasing and reselling them to investors. The Wall Street firms are being blamed for losses when the auction rate securities market failed. The brokerages argued Carilion was not their customer because claims did not "relate to a brokerage account or investment relationship" at either firm. Auction rate securities were highly liquid short-term instruments similar money markets, though with higher returns. The economic crisis prompted Carilion to file for arbitration. The appeals court ruled that though the parties agreed in their contracts with one another to litigate disputes in a New York federal court, this did not did not displace UBS and Citi's arbitration obligation of the claim filed with FINRA. See story at - http://reut.rs/W3n2Fs