Georgia businessman Robert C. Postell and his wife, Joan, lost a bundle in the market, and believed his brokerage, Merrill Lynch, had failed in its duties to him. So in December 2009 they did what their contract with Merrill required if they wanted to seek damages: They filed an arbitration claim against Merrill, now part of Bank of America, for more than $640,000 plus attorney’s fees. In May 2011, a three-arbitrator panel ordered Merrill to pay $520,000 in damages.
So how did the organization in charge of the panel, the Wall Street self-regulatory body known as the Financial Industry Regulatory Authority, respond?
It fired the arbitrators, according to this Bloomberg View column by William D. Cohan, a former investment banker and author of “Money and Power: How Goldman Sachs Came to Rule the World.”
The case is a bit complicated. Merrill's attorney, Terry Weiss, denied the Postell's claims, and Robert Postell committed suicide in February 2011, which the arbitrators learned during the May 2011 hearings. Though Weiss accused the arbitrators of bias, FINRA allowed the arbitration to proceed, Cohan writes.
But Cohan says this much is clear: Each of the three arbitrators later got what FINRA calls a "black spot" letter, saying their $200-a-day services were no longer needed. The experience was enough to prompt one, Fred Pinckney, to call Cohan to complain about the evidence of captive regulators. “You mete out justice, and then you get slapped in the face,” he told Cohan.
All good questions - as is the underlying question of whether mandatory arbitration is ever a good way to achieve justice between mega-corporations and indivdual consumers or investors. Imbalances in power matter in the courts, too - deep-pocketed parties can always hire the best lawyers. But at least the judges don't get fired if they occasionally rule the "wrong" way.