During my year-end review of securities arbitration award results for San Francisco, California, I made a conscious effort to limit my analysis to investor disputes involving stockbroker misconduct and breach of fidcuciary duty.
For 2009, there was a 43% increase in the number of securities arbitration cases filed with FINRA nationwide. Based on my analysis of the two-dozen or so cases that went all the way to hearing in San Francisco, I found that customers prevailed about 37.5% of the time. On a national basis, FINRA reports that investors won 45% of the 304 cases that went all the way to hearing. Are San Franciso Bay Area investors less likely to prevail in a FINRA arbitration hearing? I don’t think so. When I look at the arbitration awards for San Francisco cases, I noticed the following factors that can lead to a poor result:
- Investors who went to the arbitration hearing alone without an attorney did very poorly. Out of 8 arbitration cases analyzed, only one self-represented investor was awarded anything at all–the grand sum of $792 on a claim $37,500.
- If only attorney-represented cases are considered, the percent of winners jumps from 37.5% to 53%. This confirms my belief that investors who have meritorious cases may have a better than average chance of winning.
- Attorney-represented investors that did win recovered approximately 79% of their claimed compensatory damages. The reliability of this figure is somewhat questionable, however, because the damage amounts claimed could have been overstated. Also, the recovery rate was somewhat skewed by a large 7-figure award to a single customer. These results, together with other award studies that I’m familiar with, underscore the fact that arbitrators can be fairly stingy in their awards. (More on the subject of arbitrators below).
- I was not surprised to see that certain arbitrators repeatedly found against customers. Because the arbitration rules give each side the limited ability to remove arbitrators from their case, a great deal of care and attention must be paid when selecting arbitrators. An unfortunate side effect of this system is that customers often end up with arbitrators who are “middle of the road” and have a tendency to “split the baby.”
In summary, if you have a case that is truly meritorious, don’t be discouraged. Rather than try to go it alone, retain an experienced securities attorney who can effectively pursue your claim and ensure that fair-minded arbitrators are appointed to your case.