Encouraging News for Securities Arbitration Claimants?

Although my earlier blog posting about securities arbitration results in San Francisco was less rosy, today’s Wall Street Journal article, “Investors Win More Broker Cases,” did contain a bit of encouraging news for brokerage firm customers who may be considering whether to file a securities arbitration claim. The article noted that customers who went all the way to hearing before the Financial Industry Regulatory Authority (FINRA) have prevailed 45% of the time so far this year compared to just 37% in 2007. In other words, investors are winning a larger percent of cases than they did in the past, but they are still losing 65% of the time. The WSJ article also noted that awards to investors for claims under $1 million were averaging about 50% of the damages requested.

[Blogger’s note: See my year-end update, “Securities Arbitration Award Results for 2009 Better Than Expected for San Francisco Investors”]

Most Investor Claims Involve Mutual Funds

The WSJ article also makes a point of saying that a “good chunk” of the cases filed in the last two years involve auction rate securities. FINRA started keeping track of ARS cases on January 1, 2008. A total of 299 ARS cases were filed in 2008. This year, there have been 215 ARS cases filed through September 2009. A significant trend that was overlooked in the WSJ article is the fact that disputes involving mutual funds are the most frequently arbitrated type of securities product. This year, there have already been 1,272 mutual fund cases filed through September 2009–an amount that eclipses the total number of mutual fund cases filed in 2007 and 2008 combined.

Most Investor Claims Allege Breach of Fiduciary Duty and Misrepresentation

According to FINRA, the two most common types of customer complaints for 2009 are breach of fiduciary duty and misrepresentation. However, there are limitations to FINRA’s statistics. For example, FINRA only includes four claim types for every case that is filed. This may explain why unsuitability–a widely alleged customer complaint–did not rank as high as it probably should have.

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