The financial advisory industry and their 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 their 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 in Clovis, Calif., began his one-year term as PIABA president last Friday.
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 the same period last year, 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’s 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 tech wreck, according to Finra records.
“I expect [case filings] will be up over next couple years” from current levels, Mr. Shewan said.
Many cases involve dodgy bonds and preferred stocks issued by busted companies, such as Lehman Brothers Holdings Inc., Fannie Mae and Freddie Mac, he said.
“There are also a lot of situations where things were sold as cash alternatives that just weren’t,” Mr. Shewan said, in reference to the auction rate securities market collapse.
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 some momentum.
The proposed Investor Protection Act of 2009, up for a vote on Wednesday in 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.”
