PIABA URGES FINRA TO END “UNLAWFUL AND ABSURD” PRACTICE OF REMOVING ARBITRATORS WHO AWARD DAMAGES FOR CUSTOMERS FROM FUTURE CASES
WASHINGTON, DC – JANUARY 22, 2026 – In a new letter, the Public Investors Advocate Bar Association (PIABA) strongly urged the Financial Industry Regulatory Authority (FINRA) to address serious and recurring problems related to the improper application of Rule 12407(a) by interpreting “bias” in a manner inconsistent with the law. The letter states that FINRA has been allowing parties, particularly the brokerage industry Respondents, to request the removal of prospective arbitrators from ranking lists on the sole basis that the arbitrator previously decided or issued an award in a case involving the same registered representative or the same investment product, deviating dramatically from case law.
“It’s urgent that FINRA immediately revise and correct its unlawful and absurd application of Rule 12407(a). FINRA’s current practice tilts the scales in favor of the industry, directly undermines the arbitration system, wastes FINRA resources and erodes confidence in the fairness of FINRA,” said Michael Bixby, President of PIABA and managing attorney for Bixby Law PLLC. “Ultimately, it also punishes arbitrators who award damages against brokerage firms and sends an intimidating message that holding brokerage firms accountable for misconduct is frowned upon and may result in removal from future cases. If FINRA’s apparent logic were applied consistently, any arbitrator who previously heard a Wells Fargo case would have to be removed from all future Wells Fargo cases. The same would apply to other major broker-dealers. Any arbitrator who heard a case involving structured products could never hear another structured products case. Any arbitrator who presided over a churning dispute would be forever barred from hearing another churning case.”
According to PIABA’s letter, “FINRA’s practice of removing arbitrators based solely on prior service in cases involving the same broker or investment is not merely legally incorrect but practically unworkable and leads to absurd results. This raises the question that if FINRA’s apparent logic were applied consistently, what arbitrators would need to be removed from past service with the same broker dealers or the same products or types of claims.
“Furthermore, FINRA’s current practice unfairly benefits repeat-player respondents to the detriment of single-shot customer claimants. While large broker-dealers repeatedly appear in FINRA arbitrations, customer claimants would only do so on rare occasions. Hence, respondents are being allowed to remove any arbitrator that has previously ruled against them while customer claimants do not receive the same treatment. Functionally, this approach tells arbitrators that if they want to serve on panels, they should not award damages against brokerage firms.
“The inevitable result of this approach is the systematic elimination of the entire pool of experienced arbitrators from all cases involving major parties or common investment issues. This transforms experience and expertise into liabilities rather than assets. The most qualified and knowledgeable arbitrators would be ineligible to serve precisely because of their relevant experience. Although parties with an arbitrator experienced with the product at issue might benefit from being able to present their case more efficiently to an informed audience, FINRA’s current approach seems designed to increase the cost of dispute resolution.
“Given the realities of FINRA arbitration, including a limited pool of qualified arbitrators, the frequent appearance of major brokerage firms in numerous cases, the recurrence of common investment products such as REITs and structured products, and the repetition of legal theories including churning, suitability, and failure to supervise, FINRA’s current policy makes it increasingly difficult or impossible to seat arbitration panels in cases involving major brokerage firms, common investment products, recurring legal theories, or experienced counsel who appear frequently before FINRA.”
“This practice contradicts decades of legal precedent, creates practical impossibilities in seating arbitration panels, transforms expertise into a disqualification, and is clearly unfair especially to the retail customers,” Bixby added. “We continue to remind FINRA that their practices have clear consequences, and we are concerned about the erosion of confidence in the arbitration forum.”
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ABOUT PIABA
Public Investors Advocate Bar Association is an international, not-for-profit, voluntary bar association of lawyers who represent claimants in securities and commodities arbitration proceedings and securities litigation. The mission of PIABA is to promote the interests of the public investor in securities and commodities arbitration, by seeking to protect such investors from abuses in the arbitration process, by seeking to make securities arbitration as just and fair as systemically possible and by educating investors concerning their rights. For more information, go to www.piaba.org.
MEDIA CONTACT: Max Karlin at (703) 276-3255, mkarlin@hastingsgroupmedia.com.