PIABA SUPPORTS THE FIDUCIARY DUTY AMENDMENT TO REFORM BILL

Thursday, May 20, 2010 (Norman, OK) – The Public Investors Arbitration Bar Association (“PIABA”) announced its support of the proposed Menendez-Akaka amendment to the Senate financial reform bill, Restoring American Financial Stability Act (“RAFSA”). The amendment would bring the Senate version of the legislation more in line with the House version, imposing fiduciary obligations upon brokers and broker-dealers as a matter of federal law. The House version has garnered broad support from groups advocating for investors’ interests, including the North American Securities Administrators Association (“NASAA”), as well as the SEC Chairman, Mary Schapiro. PIABA believes RAFSA should specifically provide that brokers are fiduciaries as to their clients.

In the current marketplace, where brokerage firms routinely market themselves as providing services that put the customer first, many customers are surprised when their broker claims not to have fiduciary obligations.  PIABA President, Scott R. Shewan of Pape and Shewan in Clovis, California said, “We strongly support regulatory reform for the financial industry.  Brokers and brokerage firms must be held to the highest principles of integrity and loyalty—that is what the fiduciary standard requires of them.” 

The recent economic collapse left many investors holding the bag of risky investments, many of which were backed by subprime mortgages that were securitized and sold to Main Street as safe, secure investments.  “These investments were not sold because they were in the best interest of the customers, but because they generated substantial fees to the parties that sold them and provided a way for the lenders who made bad loans to pass on the risk to unsuspecting investors,” said Shewan.

Unlike the House version, the Senate bill calls for a study of the fiduciary issue by the SEC.  PIABA believes it is unnecessary for the SEC to conduct additional review and study on this issue. “When brokers provide investment advice, they must be held to the same fiduciary standard as investment advisers.  Brokers often use titles that suggest to customers they should rely upon and trust them to provide sound advice.  As they are asking investors for their trust, they must be held to high standards of trustworthiness,” said Shewan.

SUPPORT FOR ELIMINATING MANDATORY
ARBITRATION OF INVESTOR DISPUTES

Nearly all investors seeking redress for wrongful conduct must pursue their claims against brokerage firms through FINRA-sponsored arbitration. Section 921 of the proposed bill would direct the SEC to evaluate mandatory pre-dispute arbitration clauses and promulgate rulemaking to address identified issues. Although the current language is a step in the right direction, PIABA would support the amendment poposed by Senator Russ Feingold (D-WI), which would direct the SEC to limit or prohibit enforcement of these clauses against investors.  “PIABA supports the abolition of mandatory pre-dispute arbitration clauses in account agreements, thus providing investors with a meaningful choice between court and arbitration,” said Shewan.  “While the debate continues on about how best to regulate Wall Street’s conduct, one objective should be easy to agree upon – providing investors with a fair forum to obtain a remedy for their broker’s wrongdoing,” he added.

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The Public Investors Arbitration Bar Association (“PIABA”), established in 1990, is an international bar association which consists of more than 460 attorneys. The mission of PIABA is to promote the interests of the public investor in securities and commodities arbitration by protecting public investors from abuses in the arbitration process; making securities and commodities arbitration as just and fair as systematically possible; and creating a level playing field for the public investor in all securities and commodities arbitration forums.


Mr. Shewan’s Contact Information
Scott R. Shewan
Pape & Shewan, LLP
642 Pollasky Avenue
Suite 200
Clovis, California 93612
Telephone: (559) 299-4341
Facsimile: (559) 299-0920