• Less Secrecy, More Transparency in Securities Arbitration!
  • March 26, 2015 | Authors: John J. Cronan; Sigmund D. Schutz
  • Law Firm: Preti, Flaherty, Beliveau & Pachios, LLP - Portland Office
  • Every now and then federal regulators exercise their authority to oversee securities arbitration practices and procedures, but does the public have access to reports, examinations, and other documents related to that oversight? No.

    The federal court of appeals in the District of Columbia determined that four examinations by federal regulators (the Securities and Exchange Commission) and other records concerning securities arbitration are secret. In an opinion issued in November of law year, Public Investors Arbitration Bar Association v. Securities & Exchange Commission, 771 F.3d 1 (D.C.Cir. 2014) the court reached this conclusion even though the records are not core “financial” data that federal secrecy laws originally were meant to protect.

    One of the three Judges on the federal court of appeals wrote separately to urge Congress to change federal law to enhance transparency. Circuit Judge Janice Rogers Brown wrote, “Congress should revisit this ill-conceived amendment and make sure an apparent miscue does not morph into a serious misadventure.”

    She explained, “The financial world has changed since the genesis of our . . . case law. So has the world in which our financial system operates. Financial institutions and their regulators now frequently operate under a haze of public distrust fueled by repeated regulatory failures and massive, opaque, and unaccountable bailouts. The public now has good reason to doubt the rigor of our financial systems’ reliability and oversight.”

    “The ramifications of . . . all-encompassing secrecy therefore reach far beyond [investors'] (legitimate) concern for the adequacy and fairness of FINRA’s regime of arbitration. It bodes ill for rebuilding civic trust that [federal law] could be employed to permanently shroud both the possible reckless conduct by regulated financial institutions and the particulars of sweeping agency intrusions into the sphere of the financial marketplace.”

    Judge Brown cautioned that secrecy in the interest of “vague principles of regulatory cooperation” between regulated entities and their regulators ought not “inevitably trump the public’s interest in transparency.”