Kirill Kan


FINRA, Finance, Arbitration, Alternative Dispute Resolution, Investing


In the past several years, many FINRA arbitration cases have been filed against Morgan Keegan, a regional investment firm. The cases are heard in a small number of locations with relatively small arbitrator rosters. On February 25, 2010, a Tennessee Chancery court vacated a FINRA arbitration award against Morgan Keegan citing the presence of two arbitrators who served on other Morgan Keegan cases involving the same products in the dispute before it. On March 2, 2010, another court denied the identical motion to vacate by Morgan Keegan in a separate arbitration where an award was granted against Morgan Keegan. Responding to the uncertainty concerning the finality of arbitration awards in such cases, FINRA has sought to solve the problem by recommending that parties avail themselves of FINRA rules for challenging arbitrator appointments. Unfortunately, each of the likely players in such arbitration disputes—investment firms and investors—has significant incentive problems from the perspective of challenging arbitrator appointment. This Note argues that FINRA may be more successful in addressing challenges to arbitration awards by screening arbitrators to automatically eliminate those who have presided or are currently presiding over cases involving identical products and parties. Part I of this Note summarizes the mechanics of FINRA arbitrator selections and identifies the methods through which parties may challenge arbitrator appointment. Part II explores the result of such challenges in the Morgan Keegan line of cases, reviews the subsequent impact on FINRA proceedings, and outlines an alternative “auction rate case” model of screening arbitrators. Finally, Part III argues for an arbitrator selection system featuring the automatic screening method based on the “auction rate case” model as the solution to the basic risk inherent in high volumes of cases based on singular financial products.



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