Because most disputes between individual investors and their brokerage firms are arbitrated through FINRA’s Dispute Resolution forum, many legal issues impacting retail investors do not make their way through the courts but instead end up being resolved in a private forum with little transparency (i.e., awards are published but usually contain no reasons or explanations). Fortunately, however, securities arbitration is a regulated ADR process: the Securities and Exchange Commission (SEC) must review and approve, after opportunity for public comment, any changes to FINRA’s arbitration or mediation codes.
Securities arbitration clinics are a great way for students to represent clients who cannot afford to hire private lawyers in ADR processes, including negotiation, mediation and arbitration. These clinics are fortunate that the SEC has engaged in significant outreach to them, and on April 4 the SEC hosted the first Investor Advocacy Clinic Summit in Washington DC.
Pace’s Investor Rights Clinic sent 5 students to the Summit (Christine Carovillano, Andrew Esoldi, Giuseppe Fioretto, Jin Lee, and Brianna Passman). Ten other securities arbitration clinics from other law schools across the country participated in a full-day event at the SEC, as an extension of the Office of the Investor Advocate’s Law School Clinic Outreach Program. In the morning, the clinic students broke into groups and brainstormed with SEC staff on topics affecting retail investors. In the afternoon, each clinic presented an issue of importance to retail investors and a practical solution to resolve the issue identified. PIRC’s presentation focused on the issue of the impact of inaccurate customer information in account profiles. Throughout the day, representatives from the SEC, FINRA, and NASAA spoke to the students.
Pace’s clinic students reflected on their experience at the Summit. Here are some excerpts:
“I thought that the SEC Investor Advocacy Summit was a terrific experience. It was the culmination of everything we have done at the Investor Rights Clinic. We were at the Securities and Exchange Commission conversing with government officials who were genuinely interested in our clinical work. I was very impressed that they sought our input regarding securities regulations, given that they all have extensive legal careers and we don’t even have law degrees. I thought it was great opportunity to network with other law clinics, professors, and SEC officials. The breakout sessions and the presentations were great learning experiences. I gained insight into how those who enact policy and how my colleagues approach issues. In our presentation, I was happy that we were able to share our thoughts on inaccurate customer information in account profiles and that we got many questions afterwards from SEC staff. It shows that our ideas may have resonated and perhaps action will be taken. Overall, I am very happy to have had this experience because it was something I would have never expected upon starting law school. Meeting with SEC officials at their headquarters and having substantive legal and policy discussions it is not an ordinary thing for a law student to be doing.”
“It was pretty encouraging to see how interested the SEC was in what the clinics actually had to say. The SEC team all had notebooks and asked questions that showed they were seriously listening to the clinics suggestions both in the morning break-out sessions and during the clinic presentations. It was affirming to see that most of the clinics had the exact same ones that PIRC encounters as well.”
“I really enjoyed the experience of gathering information from other law school clinics as well as from the SEC staff. This experience provided me with a broader outlook on how the work we do at the Pace Investor Rights Clinic affects the industry day to day. Hearing how small modest means investors are defrauded by advisors in almost the same ways in each clinic is surprising and should raise flags for the SEC to use the information to develop solutions for these issues. The most important thing I learned was that the staff is dedicated to helping small investors avoid becoming victims of unscrupulous advisors. In addition, the SEC staff is dedicated in protecting advisors from unnecessary regulations. After each clinic presentation, the SEC staff asked questions, which highlighted the real life implications on firms and investors.”
“I liked how appreciative the SEC was about the fact that we are the boots on the ground dealing with investors that other firms would not take on because of their sum of money. I think the most beneficial part of the day was the student presentations. Each clinic had the ability to highlight an issue that they commonly see in their practice and present their solutions to combat the issue.”
As a bonus, the following day, the students also participated in the Public Investors Arbitration Bar Association (PIABA) Hill Day on April 5, where students, alongside PIABA attorneys, met with Congressional staffers to discuss issues of importance to investors!