Dingell-Markey Present Laundry List of Arbitration Inquiries

Seeking Information from the GAO, SEC and NASD Regarding Arbitrator Bias, Motions to Dismiss and Unpaid Awards

In an April 15 letter addressed to the GAO, SEC and NASD-DR, Congressmen John D. Dingell (D-MI) and Edward J. Markey (D-MA) describe five arbitration-related items as to which they request further investigation and response. Rep. Dingell is the Ranking Member of the House Committee on Energy and Commerce. Rep. Markey is the Ranking Member of the Subcommittee on Telecommunications and the Internet.

First on their list is the “chronic problem of unpaid arbitration awards.” GAO’s June 2000 Report on this subject has led to requests for regular updates from the Congressmen and, in this letter, a follow-up report by GAO, is discussed. GAO is expected to complete the design phase in June 2002 of a report that “will examine the effect that [NASD rule changes] have had on the problem of unpaid awards and what more may need to be done.”

The list of follow-up and new items for review include arbitrator disclosure, arbitrator bias and misconduct, abusive motion practices, and employment arbitrations. Both the SEC and NASD-DR are asked to report “findings to us by the close of business on Friday, May 10, 2002,” regarding complaints to the Congressmen about bias and motion practice.

With respect to the former, the “findings” should be targeted to the “available procedural mechanisms for removal of biased arbitrators once the misconduct comes to light.”

The inquiry on motion practice in securities arbitration concerns a complaint about “the security [sic] industry’s use of motions for summary disposition and motions to dismiss arbitration claims and thereby deny investors any evidentiary hearing.”

The GAO is also tasked to “review this complaint in connection with its follow-up report. We would be deeply concerned,” the letter admonishes, “if this practice was being widely used to undermine the rights of claimants.” (SAC Ed: We read about the abusive motions allegation in a recent Wall Street Letter (4/29/02, p. 9), but only this morning did we receive the Dingell-Markey letter and the back-up correspondence written by Laurence S. Schultz, Driggers, Schultz & Herbst. Mr. Schultz is the Michigan attorney who raised the issue of pre-hearing motions to dismiss in arbitration. Between early October and early December 2001, Mr. Schultz wrote at least three letters on this issue to NASD-DR’s Linda D. Fienberg. Among other things, he asks in that correspondence that the arbitration rules “be amended to specifically provide that motions to dismiss or motions for summary judgment which involve material questions of fact may not be granted by arbitrators without providing the claimant a full evidentiary hearing pursuant to Rule 10303(a).”) (SAC Ref. No. 02-19-02) (SECLaw.com Ed.: one can only wonder where this problem is, and if any of these problems actually exist. While it is true that motions to dismiss are sometimes granted, it is rare, and in cases where the claimant has named a clearly incorrect party. Regarding unpaid awards, we will have to wait and see the results of the study, but no one has explained why NASD arbitration participants are entitled to any more rights than any other litigant in the United States. Parties go out of business, firms go bankrupt – regardless of whether they are in the securities business or not).

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Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.