"x x x.
The problem is that it creates a home-field advantage for prosecutors. It isn't so much the penalties but the proceedings themselves that are at issue. Defendants claim they have more extensive rights to take witness testimony and collect evidence in federal trials than an administrative proceeding. Last year, Jordan Peixoto, accused of insider trading, appealed his administrative trial, claiming an abridgment of his “constitutional rights to due process and equal protection under the law.” The case was dropped, though for different reasons.
American jurisprudence is replete with structural devices to avoid litigation. The reality is the vast majority of disputes are resolved without going to trial. Typically, there is a party claiming some kind of damage, and the threat of litigation and its potential costs forces some manner of rational calculus on all of the parties.
A small number of claims don't lend themselves to easily resolution. Sometimes facts are in dispute, the law is unsettled or there are advantages to delay. Occasionally, one of the parties isn't rational. The result is that some cases do go to trial.
I have personal experience with this. Decades ago in my earlier career as a lawyer, I ran mediation and arbitration cases. I worked with retired federal and state judges, who were used by litigants to hash out faster, cheaper and arguably fairer settlements than might otherwise have been reached through the courts.
The key however was that “alternative dispute resolution,” as the process was known, was strictly voluntary. When both sides realized they were at an impasse, and the costs of delay were high, all parties came to the table to find a palatable solution. No one gave up the right to go to court.
This isn't the case, though, in Finra arbitrations. Anyone who works on Wall Street or invests through a brokerage firm has signed an agreement to settle any dispute through mandatory arbitration. There is no alternative. If you want a job at a brokerage firm, or if you want a brokerage account, you are placed in an arbitration straitjacket. Unfortunately, our business-friendly Supreme Court has upheld the use of mandatory-arbitration agreements.
Forget for a moment that these agreements require you to sign away your right to go to court to resolve a dispute. What's more troubling is the how the process is slanted in favor of those who work for the financial industry, which in turn runs Finra. This conflict of interest tells you almost all you need to know about Finra-sponsored arbitration. Some of the abuses that have been documented over the years are mind-boggling.
To its credit, the SEC has responded to complaints from the defendant’s bar, and is overhauling its in-house tribunal process. This is a small but positive step. Whether it goes far enough has yet to be determined. One thing you probably can count on: No similar change at Finra.
Americans have a fundamental right to a trial for both criminal and civil offenses, and no one should be required to surrender it to get a job or conduct business. We should be very skeptical of methods that limit or deny people the right to defend themselves or seek redress.
x x x."
