Investor Advocacy Clinic Comments on FINRA Proposed Rule Change 2014-028

By: Ryan Corbin , Fall 2014 Student Intern

LAW_IACThe GSU Investor Advocacy Clinic is committed to protecting the interests of individual investors. Therefore, in addition to providing legal services and participating in investor education and outreach, the clinic is also actively involved in the public comment process relating to rule changes proposed by FINRA.

The Proposal: SR-FINRA-2014-028

FINRA recently proposed SR-FINRA-2014-028, which would “refine and reorganize the definitions of ‘non-public arbitrator’ and ‘public arbitrator.’” Individuals affiliated with the financial industry are typically considered “non-public arbitrators” and individuals unaffiliated with the financial industry are typically considered “public arbitrators.”  The new rule would provide that persons who worked in the financial industry for any duration during their careers would always be classified as non-public arbitrators.  The change would also provide that persons who represent investors or the financial industry as a significant part of their business would also be classified as non-public arbitrators, but could become public arbitrators after a cooling-off period.

The Clinic’s Comment

On November 6, 2014, the clinic submitted a comment letter expressing its opposition to this proposed rule change.  The proposed rule would actually serve to diminish the availability of public arbitrators and remove qualified arbitrators with no ties to the industry from the pool of available arbitrators.  The proposed rule also does not achieve its goal of broadening the definition of “non-public arbitrators.”  This is of significant importance to small investors since they may arbitrate their claims before an all-public panel.  The proposed change will drastically decrease the amount of public arbitrators available to hear these types of disputes.

The clinic recommended that the definition of non-public arbitrators include anyone who has ties, whether current or former, to the financial industry including individuals associated with hedge funds, mutual funds, and non-traded REITS. It is essential that the investing public feel that they have a fair and unbiased tribunal in which to arbitrate their claims.  The clinic further recommended that claimants lawyers and other professionals serving the investing public not be classified as non-public.

The primary student author of the comment letter, Kori Eskridge, was assisted by student interns Ryan Corbin and Kristina Ludwig.