By Dylan Donley, Spring 2014 Graduate Research Assistant
As we discussed yesterday, FINRA does provide a fair amount of information about each potential arbitrator, but the information given does not and cannot cover every detail of each arbitrator’s life that parties may consider relevant to making decisions about which arbitrators to choose to serve on their panel.
For example, if an investor were induced to purchase penny stocks in “Obama” branded t-shirts in time for the last presidential election because “the stocks are sure to make millions!” and one of the arbitrators was a staunch Tea Party Republican who hated all things Obama related, it is possible that the investor would be concerned that the arbitrator would be less sympathetic to his claim than someone who did not adamantly hate Obama related things. While this would be information the investor might want to know, he would not be able to find it based on the mandatory disclosures reported to parties under FINRA Rule 12405 or the Arbitrator Disclosure Reports. Thus, while the information from FINRA is a great starting point for parties, it is critical for parties to do their own research as well to supplement what FINRA provides.
In some instances, a failure to do research beyond the information provided by FINRA has caused significant problems for all parties and may compromise proceedings or result in vacated awards as a result of arbitrator misconduct. Recently, Reuters reported the removal of the arbitrator, James H. Frank, of Santa Barbara, California, from FINRA’s roster of arbitrators last year because FINRA learned that he lied about being a licensed attorney and a bar member of California, New York, and Florida. This issue came to light in August 2013 hearings. Following the hearing, the investor’s attorney looked into the arbitrator’s background and hired a private investigator to find out additional information about Frank. The results were shocking – the private investigator found that there was only one person named James H. Frank licensed to practice law in California, but it was not the same person as the FINRA arbitrator. The James H. Frank was licensed to practice law in California and graduated from Southwestern Law School in 1975, which is exactly what the arbitrator James H. Frank had listed on his FINRA report. Frank admitted that he did not actually graduate from Southwestern Law School but took a bar refresher course there, and further admitted that while California must have lost his bar records, he was never actually licensed in New York or Florida despite having indicated to FINRA that he had done so.
Frank had served on securities arbitration panels in 38 cases between 1998 and 2011, and was involved in seven cases at the time of his dismissal. As noted by Terry Weiss of Greenberg Traurig, LLP in the article, “[a]n arbitrator who misrepresents himself as a lawyer is an obvious serious concern… That sort of misconduct could be the basis to vacate the final arbitration award if brought in a timely manner.” While parties may not directly be able to stop such misconduct through research, they can certainly better protect themselves and the outcomes of their claims through arbitrator research.