According to Bill Singer, writing for Forbes (4/3/12), the claimant, Marvin J. Blum, sought $500,000 in compensatory damages after being sold limited partnerships that were allegedly not suitable investments for him. He further sought interest, punitive damages and fees. The FINRA (Financial Industry Regulatory Authority) arbitration panel hearing the case, however, awarded the claimant more than $400,000 in compensatory damages plus interest and a further $900,000 in punitive damages. The panel also awarded more than $150,000 in costs and fees.
The panel did not give a reason for its decision.
Meanwhile, FINRA announced it is investigating the marketing of exchange-traded notes. The announcement was made in March 2012, after one exchange-traded note experienced a loss of half its value in just two days. FINRA said it was investigating the events that surrounded the dramatic loss in value.
According to Reuters (3/30/12), exchange-traded notes have grown in popularity since being released on the market in 2006. The notes allow traders to bet on different market segments and are issued by banks.
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Investors who feel they have been wronged by their stockbroker must usually file a FINRA arbitration against the broker and/or the broker's firm. Client contracts usually include a clause mandating arbitration rather than a lawsuit to settle claims, although class-action claims may be heard in the courts.
FINRA arbitrations are often considered preferable to the courts because the arbitration takes less time to hear, the finding is often binding and the losing side cannot file multiple appeals of the panel's decision. Unfortunately, though, as Singer notes in his Forbes column, the arbitration panel does not have to publish the reasons for its decisions, making it difficult for other claimants or investors to learn from the people who went before them.