By Montgomery G. Griffin and Theodore S. Avery
Disputes between aggrieved investors and their former brokerage firms are heard and decided in a highly specialized forum (FINRA arbitration) and they typically involve highly specialized issues (suitability, churning, calculating market-adjusted damages, complex securities, etc.). To optimize your chance of achieving a substantial recovery, the lawyer you choose should similarly be highly specialized in the myriad of nuances defining the securities industry. In this post, we discuss 3 key reasons why the securities expertise of a lawyer matters.
Arguably the most important decision for an aggrieved investor occurs before a case is ever filed: Whom to select as his or her counsel? One can rest assured that Wall Street—with its enormous capital—will be strongly represented by a lawyer (or, as is often the case with disputes involving substantial damage amounts, a team of lawyers) with plenty of securities experience. But, on the investor side, pitfalls abound for lawyers relatively unfamiliar with the securities industry or securities arbitration—despite the fact that plenty such “unsuitable” lawyers (and even non-lawyers) aggressively market themselves to clients via the Internet in search of representation against Wall Street and before FINRA arbitrators. Conversely, lawyers with specialized knowledge and experience can often uncover and leverage critical edges in securities disputes that can lead to superior case results. The Law Offices of Montgomery G. Griffin has extensive specialized securities knowledge and experience, as demonstrated by Montgomery G. Griffin’s past as a financial advisor, FINRA arbitrator, and longtime securities arbitration investor advocate. Below are 3 reasons why this kind of knowledge and experience matters:1. The Securities Industry Is a Complicated Industry, Subject to Complicated Laws, and Loaded with Complicated Subject Matter. It is difficult to think of an industry as complex and sprawling as the securities industry. There are:
- Many products (such as blue-chip stocks, small-cap stocks, corporate bonds, municipal bonds, open-end mutual funds, closed-end mutual funds, syndicate issues, options, warrants, LEAPs, junk bonds, ETFs, non-conventional investments, variable annuities, and so on);
- Many players (such as brokerage firms, investment advisory firms, clearing houses, underwriters, financial advisors, issuers, investment bankers, wholesalers, and so on); and
- A vast web of relevant rules, regulations, laws, and industry standards that have important implications for everyone and everything involved.
A strong familiarity with all of these moving parts is an extremely powerful tool—if not a necessity—for successfully handling securities arbitration claims and defenses.
To optimize your chances of prevailing over a Wall Street firm before FINRA arbitrators, your counsel should be able to readily answer questions like the following:
- What index, or blend of indices, would most likely be applied by arbitrators to an underperformance (or failure to diversify) case?
- How does a cost-to-equity ratio differ from a turnover rate when analyzing a potential churning case? And, exactly what ratios and rates has the SEC held constitutes presumptive levels of excessive trading?
- What is a close estimation of the amount hidden commissions taken out of the investor’s account by the brokerage firm and financial advisor?
- Of the many securities expert witnesses around the country, who might be best for a case with critical supervision issues?
- Who among the following four securities arbitrators are likely to be chosen by Wall Street firms during the arbitrator selection phase of a case? Chad Weaver, Mason Dinehart, Samuel Y. Edgerton, Reed Bement?
- What unique theory of damages did the California Court of Appeal fashion in the 1968 decision of Twomey v. Mitchum Jones?
- What appellate case from Florida involving Shearson Lehman Hutton held that “there is no support to be found under federal or Florida law” for the damages theory known as “netting” (or sometimes called, “NOP”) (NOTE: arguing that NOP is an appropriate damages theory is a favorite ploy of Wall Street firms in securities arbitration disputes)?
- Under what circumstances can a deposition be taken in a FINRA arbitration matter prior to the hearing on the merits?
- What category of documents typically held by the brokerage firm is likely the best evidence to use to support a market-adjusted damages analysis? And, more preliminarily, does the FINRA Arbitrator’s Guide permit arbitrators to consider this damages theory? (Bonus points for any attorney who knows that “yes,” the Arbitrator’s Guide specifically holds at page 66 that FINRA arbitrators are authorized to award an aggrieved investor market-adjusted damages.)
- How far (in percentage terms) did the tech-heavy NASDAQ Index plummet during the “tech wreck” of 2000-2002? (Bonus points for any attorney who knows that it was an astonishing 80% drop from the top of the NASDAQ in 2000 to its nadir in late 2002!)
- Where can a lawyer obtain transcripts from past testimony of so-called expert witnesses who Wall Street repeatedly uses during arbitrations in the FINRA forum?
This list of 11 questions is a simple and short set of questions that are representative of the myriad of specialized nuances that your lawyer should readily know if you wish to maximize your chances of prevailing against the sharp and clever defense tactics Wall Street’s lawyers will cast upon you following the filing of your arbitration at FINRA. While many lawyers who advertise on the Internet for new clients to represent against Wall Street firms claim to have certain expertise in the securities industry, the securities background of Monty Griffin, which dates back to 1980 (when he first worked for Merrill Lynch in Los Angeles while studying at UCLA), is matched by few.
2. Securities Arbitration Procedure Is a Unique Species of Arbitration. A private arbitration proceeding, on the one hand, and a court case, on the other hand, are conducted and decided in two entirely different forums. Each forum has its own unique—and different—set of procedural rules. Although some similarities exist, the differences—particularly when comparing a FINRA securities arbitration to a court case—are substantial. Many court litigators have little experience with arbitration. Even if a litigator happens to have substantial arbitration experience (such as, for example, with employment arbitrations at the American Arbitration Association, or AAA), he or she may find him or herself to be a fish out of water in the securities arbitration arena. Securities arbitrations have their own rules and customs that will likely be foreign to many practitioners. To be specific, the tip of the procedural “iceberg” with a FINRA arbitration demands that a lawyer have strong knowledge with FINRA’s own Discovery Guide, Arbitrator’s Guide, Regulatory Notices, and Sanctions Guidelines. The detailed procedural and substantive information in each of these “vaults” can (and, in varying degrees, likely will) have enormous impact on the fate of an investor’s arbitration claim(s).
In addition, a FINRA arbitration is initiated by the preparation and filing of an investor’s Statement of Claim. Most arbitrators tend to focus on the facts more so than the law related to an investor’s claim(s). Setting forth a detailed and convincing set of facts is critical to constructing a strong foundation from which to launch an attack on a financial advisor and/or Wall Street firm gone bad. Only lawyers who have developed a deep and detailed knowledge of the securities industry can thoroughly analyze a potential case and then draft such compelling Statements of Claim.
3. Securities Arbitration Is a Small World—Knowing It and Being Known in It Can Make a Big Difference. A strong track record in the securities arbitration world—only developed over many years of experience and success—can have a big impact on the likelihood of success for any given case. The reality is that the FINRA arbitration process throughout the USA is a small world where many of the same arbitrators, attorneys, expert witnesses, and brokerage firms repeatedly interact with, or do battle with, each other. Having experience with different arbitrators or knowing their reputations can be invaluable during the arbitrator selection process, which among other things requires a lawyer to closely assess 35 prospective arbitrators chosen by FINRA for consideration on each and every case. Similarly, being represented by an advocate known by arbitrators and brokerage firms for being strong, persistent, detail-oriented, and knowledgeable—a reputation the Law Offices of Montgomery G. Griffin proudly believes itself to have and have earned—can make all the difference in making sure that your claims are treated with full seriousness at all stages of the arbitration process, including settlement negotiations and the final hearing.
FINRA Arbitration Provides No Right to An Appeal
By virtue of arbitration clauses embedded in new account agreements between investors and their brokerage firms, virtually all securities-related disputes are forced into FINRA arbitration, not court. Unlike court litigation where a litigant has the protection of an extensive appeals system that can provide him or her an effective “redo” in the event of a trial gone wrong, participants in FINRA arbitration have extremely limited options for obtaining any relief if they are unhappy with the results of an arbitration. Indeed, pursuing a formal appeal is not possible.
Securities arbitration litigants, in essence, have only one shot to put their claims or defenses on, making it paramount that they do everything they can to ensure that the opportunity is not mishandled or squandered. The first important step that an investor can take to try to tilt the odds of prevailing in their favor is to retain a lawyer with unique and extensive experience working in the securities industry and dealing with the FINRA securities arbitration process. Contact the Law Offices of Montgomery G. Griffin for a free consultation if you are concerned that your account has substantially underperformed relevant indices or that you have otherwise been the victim of misconduct by your financial advisor.