‘Sunlight is said to be the best of disinfectants,” the future Supreme Court
Justice Louis Brandeis famously wrote in a 1913 article for Harpers Weekly, and
now, almost 100 years later, there is evidence that Brandeis was
On July 9, I wrote a column describing how the Financial Industry
Regulatory Authority, Wall Street’s self-policing organization, seemingly out of
nowhere fired three arbitrators in the months after a May 2011 case in which
they awarded $520,000 to the estate of the late Robert Postell. The finding was
against Postell’s former broker, Merrill Lynch, a subsidiary of Bank of America
One after another over a period of about a year, the arbitrators –
Ilene Gormly, Daniel Kolber and Fred Pinckney – received what are known as
“black spot” letters from Finra, removing them from the roster of those
empowered to adjudicate the thousands of lawsuits brought each year by Wall
Street employees and customers against financial firms.
The black spot
letters described how Finra periodically examines the list of arbitrators and
culls people from it.
Finra officials have said that Gormly, Kolber and
Pinckney weren’t removed because Merrill’s lawyer and executives complained to
the authority about the sizable award granted to Postell, who died after filing
the claim, and his wife, Joan.
Was it truly a coincidence? Finra derives
the vast majority of its more than $1 billion in annual revenue from securities
firms, and executives in the industry serve on Finra’s board of
My column on the matter caused a bit of a stir around Finra –
as well as at the Public Investors Arbitration Bar Association, a group of about
500 or so lawyers who represent claimants in Finra arbitrations. Letters started
flying between a Finra executive and a Piaba executive explaining the steps
Finra takes when it removes an arbitrator.
Finra’s goal was to show that
its actions in the firing of Gormly, Kolber and Pinckney were for good, albeit
Finra’s justifications rang hollow, and on July 25 the
organization took the remarkable step of reinstating all three arbitrators to
the Finra roster. In a letter to the arbitrators, Linda Fienberg, the president
of Finra’s dispute resolution and its chief hearing officer, explained that
“after reading the commentary” from Bloomberg View she and her fellow Finra
executives “re-opened the matter.”
They listened to tapes of the Postell
arbitration proceedings and “reached a different conclusion regarding the
alleged inappropriate conduct from the conclusion previously reached.” (Finra
provided me with a copy of the letter.) Still, Fienberg alleged unspecified
“inaccuracies” in my reporting and disputed the causal relationship between the
firing of the three arbitrators and the complaints from Merrill and its attorney
about the Postell award.
“There is no validity to this assertion,”
Fienberg wrote. “Finra simply does not remove arbitrators from the roster
based upon their awards, and never has.”
Maybe. Andrew Stoltmann, a
lawyer in Chicago who sues Wall Street firms, contacted me after seeing my
column to say he has never heard of three arbitrators being removed in the way
that Gormly, Kolber and Pinckney were. “I’ve handled close to 1,000 Finra
arbitrations over the years,” he wrote in an e-mail. “To think Finra removes
arbitrators and, but for news coverage like this, those arbitrators would have
stayed, out is extraordinary troubling.
Finra’s major credibility problem
is directly related to issues like these.”
One would like to think the
reinstatement of the three arbitrators ends the matter in a very satisfying way.
But, alas, it doesn’t. Merrill Lynch, through its attorney, Terry Weiss of
Greenberg Traurig, has asked a federal judge in Atlanta to throw out the
$520,000 award to the Postells.
Weiss argued in his motion to vacate that
the arbitrators “exhibited evident partiality ‘misbehaved’ such that Merrill
Lynch’s rights were prejudiced, exceeded their powers by taking over the
arbitration, conducting hostile cross examination of Merrill Lynch’s witnesses
on irrelevant topics and refusing Merrill Lynch’s request that the biased
arbitrators recuse themselves.”
Weiss attached a copy of my column to a
motion he filed with the federal court to supplement the record.
had the chutzpah to argue that the dismissal of the arbitrators was a smoking
gun showing that the panel had done something egregiously wrong in the Postell
arbitration. Now, with Finra having cleared the arbitrators of wrongdoing, Weiss
has boxed himself into a corner in the legal argument department.
previous column also brought complaints that because, almost 10 years ago, I
pursued my own arbitration against JPMorgan Chase Co. (JPM) – and lost – I am
biased against Wall Street arbitration. No. What I am against is the sham that
so often passes for justice on Wall Street these days.
The millions of
people who either work there or who have brokerage accounts sign away – upfront
– their legal right to resolve financial disputes in a court of law. They are
forced into Finra arbitration and most don’t have a clue they have relinquished
their ability to resolve it any other way.
Finra’s treatment of Gormly,
Kolber and Pinckney – despite their reinstatements – illustrates just how shoddy
the system is. It needs to be scrapped, and those with a grievance against Wall
Street should get their day in a real court. (Bloomberg) William D. Cohan is the
author of the recently released Money and Power: How Goldman Sachs Came to Rule
the World and the New York Times bestsellers House of Cards and The Last
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