NASD Arbitration Statistics 10/20 –

Filings Up 38% over 2000, Open vs. Closed Gap Widens

NASD STATS, 10/02: The number of new arbitration filings has exceeded the average number of filings for 2001 in every month of 2002 and the monthly figure for October 2002 represents the largest gain this year. There were 715 new filings in October, bringing the total number of new submissions for 2002 to 6,405.

Coincidentally, 715 filings were reported in October 2001 as well, so that October was also the largest filing month last year. However, the World Trade Center attacks artificially depressed the numbers for September 2001 and probably inflated them in October 2001.

The 6,405 claims tally stands 12% ahead of the same period in 2001, when the total new-case tally stood at 5,697. It is 38% ahead of the 4,646 cases filed at this point in 2000. October is an important month for mediation at NASD.

In 2001, Settlement Month was extended into November, again because of the terrorist attacks. This year, some 128 new cases entered agreement in October, close to twice the average for previous months in 2002, and the total increase in “Cases in Agreement” in mediation stands 5% ahead of last year.

The real improvement case in the “Cases Closed” area, which moved to 8% higher than last year from 3% in September; yet, the settlement percentage, a historically high 83%, was maintained.

The primary target of heightened complaint from customers on the product side continues to be mutual funds, about 20% of the time, and, in terms of the sales practices, unsuitability charges. Suitability claims are up about 70% from last year. If one assumes that, about 20% of the new cases are industry-related matters, then four of every five customer claims asserts a breach of fiduciary duty, and one of every two claims charges negligence, unsuitability, misrepresentation and/or failure to supervise.

The closed case statistics reveal the problem that this persistent rise in filings represents for the forum. During the last dozen years, there have been only three years in which closed cases exceeded the number of new filings. At the current rate this year, even though the closed case rate is up 8% over 2001, the gap between incoming volume and outgoing caseload will be about 1,700 cases. In percentage terms, that means that, in one year, the carryover volume will increase about 50% over the accumulated carryover from the past dozen years (est. 3,417 cases). (SAC Ref. No. 02-46-03

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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 -, 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.