Proposed $123 Mil. Accord Is Reached in Bradley Abuse Suit

ARE YOU A
CHILD ABUSE VICTIM
OF THE BOY SCOUTS OF AMERICA?

Decades of Abuse Records Now Released by the BSA Because of Court Order

The Law Firm of Alan L. Frank Law Associates, P.C.

is involved in investigating for civil prosecution claims of child sexual abuse victims againstthe Boy Scouts of America from 1955 through the present day. If you or anyone in your family have concerns regarding possible child abuse, you should consult with an attorney to assure that your rights are being protected.

The Law Firm of Alan L. Frank Law Associates, P.C.
135 Old York Road, Jenkintown, PA 19046

has a compassionate and effective legal team assembled to deal with these potential cases that we will handle on a contingent fee basis with no cost to you unless a recovery is obtained. We have successfully handled many similar cases in the past, and have a proven track record.

Please call our firm to arrange for a confidential
free initial consultation at:

215.935.1000
www.alflaw.net

 

For more information regarding the recent release of the Boy Scouts of America’s “perversion files”, please follow this link.

Our firm has extensive experience handling sexual abuse cases.  Recently, our firm played an integral role in litigation against convicted pedophile Earl Bradley and the hospital where he worked.  Our firm was an integral member of the Plaintiff’s class action steering committee, representing hundreds of adults and children, who were pediatric patients of Earl Bradley.  Following extensive litigation the Plaintiff’s secured a substantial settlement.


From the Legal Intelligencer:

Proposed $123 Mil. Accord Is Reached in Bradley Abuse Suit

Insurance companies and the hospital where convicted serial child sex offender Dr. Earl Bradley worked have reached a proposed settlement of $123.15 million to create a fund for the reported hundreds of victims assaulted by the doctor.

Gina Passarella and Jeff Mordock

2012-10-11 12:00:00 AM

Insurance companies and the hospital where convicted serial child sex offender Dr. Earl Bradley worked have reached a proposed settlement of $123.15 million to create a fund for the reported hundreds of victims assaulted by the doctor.

Word that a $100 million-plus settlement was in the works has been out there for some time, but the parties, including Beebe Medical Center, officially announced the final number Wednesday. A November 13 hearing before Delaware Superior Court Judge Joseph R. Slights III is set to determine the fairness of the settlement.

According to the statement released Wednesday by Beebe, the hospital said it wanted to avoid costly litigation that could bankrupt the institution and be painful for the victims. Beebe said that for the first time anywhere, a class action was agreed upon to deal with sexual abuse.

According to the statement, the $123.15 million is a combination of insurance coverage and a donation from Beebe.

The allocation plan provides for the division of claimants into five categories, based upon the nature of the harm the child suffered and his or her need for continued treatment. Children within each category will each receive the same amount of compensation. For the many victims under the age of 18, these funds will be held in a trust for their needs under the ultimate supervision of the Delaware Court of Chancery, Beebe said.

The Chancery Court will likely appoint a special master to oversee the fund, its implementation and determine which category each of Bradley’s victims should be placed into.

John G. Culhane, a professor at Widener University School of Law, has written articles and lectured on the topic of victim compensation. He told The Legal that the compensation was the best solution for both parties to avoid expensive and lengthy litigation.

“A victim’s fund may have been particularly appealing in this case because of the victim’s ages and the length of the litigation,” he said. “It may have inspired both parties to look for some kind of alternative.

“Although there is no model in sexual-abuse cases, this is a good first case for it because of the nature of the victims and it is a way to get these kids set up so they can have a brighter future after what happened to them.”

The ages of Bradley’s victims may present a challenge to estimating a victim’s damages, according to Culhane. Bradley had assaulted very young children, some as young as 2 years old, who may not remember the abuse or never articulated it. However, he said there are ways to determine which category a child belongs into, including the number of appointments a victim had with Bradley and how many years they were a patient.

“It probably won’t exactly correspond to what happened, but it will be an approximate that everyone can live with given the uncertainty of trying to slug this out in litigation,” he said.

Beebe had brought in lawyers who specialized in insurance coverage to maximize the coverage available to it, the hospital said.

One of the lawyers, Michael M. Mustokoff of Duane Morris, declined to comment, noting that the court has asked both parties to refrain from talking about the case until the November 13 settlement. He did add that the settlement will not bankrupt Beebe and the hospital will be able to continue to provide care for its patients.

Bruce L. Hudson, a Wilmington, Del., attorney representing the plaintiffs, did not immediately return calls seeking comment.

According to the statement, the $123.15 million is a combination of insurance coverage and a donation from Beebe.

Lawyers for the victim class members and the hospital agreed to mediation, which was presided over by retired Delaware Supreme Court Justice Joseph T. Walsh.

“For 17 months, in monthly, weekly and finally, daily sessions, the lawyers sought to balance the legal rights of their respective clients against the needs of the children, the availability of insurance proceeds, and the hospital’s ability to continue to provide excellent care to the Lower Delaware community,” Beebe said. “All parties compromised.”

All claims against the Medical Society of Delaware and its Physicians’ Health Committee members had been dismissed, but Beebe said the society’s insurance carriers agreed to contribute to the settlement without any admission or finding of liability.

If Slights approves the proposed settlement, all claims against the hospital will be dismissed, Beebe said.

Lawyers for the children have submitted an allocation plan to Slights. Attorney Thomas Rutter, along with pediatrician and child forensic psychiatrist Dr. Annie Steinberg, will administer the plan. Beebe said there were “hundreds” of victims.

Bradley, a former Lewes, Del., pediatrician, had his June 2011 conviction for rape, second-degree assault and sexual exploitation of children affirmed by the Delaware Supreme Court in September. During Bradley’s trial last year, he was sentenced to 14 consecutive life terms plus 164 years.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI.

Jeff Mordock can be contacted at 215-557-2485 or jmordock@alm.com. Follow him on Twitter @JeffMordockTLI. •

Litigation Resulting from the “Subprime” Meltdown

The fallout from the subprime mortgage crisis has had a devastating and rippling effect on the U.S, economy and has even spilled over into the global credit markets. One need only look at the collapse of the investment bank Bear Stearns—which once was the country’s fifth largest investment bank—or the massive losses sustained by mortgage lender Countrywide Financial Corporation to appreciate the current state of the U.S. financial markets.

As the facts begin to emerge, state and federal lawsuits and securities arbitrations are being filed which address the numerous claims stemming from the sub-prime crisis. The broad range of defendants in these suits includes mortgage bankers, commercial lenders, investment banks, brokerage firms and rating agencies. The types of claims range from securities/investor suits to consumer/ borrower and discriminatory lending actions. In this year alone, major Fortune 50 companies such as Citibank, Wells Fargo, and Merrill Lynch have all been named in multi-million dollar lawsuits. In fact, with the world’s largest banks and securities firms claiming write-downs and credit losses in excess of $370 billion since 2007, one would expect litigation to increase dramatically over the next several years.

To fully comprehend the underlying principles driving lawsuits stemming from the subprime meltdown, it is necessary to have a cursory understanding of the history of the mortgage and securities industries and how each one interacted and conducted business.

Up until the 1980s, homeowners simply applied to their local bank or mortgage company for a loan to purchase or refinance a home. The lending institution would then evaluate the borrower’s creditworthiness and have an appraisal of the property performed to determine the value of the collateral. If the loan was approved, it would often be done so on relatively straight forward terms ranging from 15 to 30 years with a fixed interest rate for the entire duration of the term. Simply put, there was accountability in this system. If a borrower defaulted, the financial institution that approved the loan would suffer an economic loss of some measurable amount. Moreover, the shareholders of the bank or mortgage company could hold the management team accountable if loans were not performing as expected.

In the mid 1980s, the lending process slowly began to shift when Fannie Mae and Freddie Mac (both government sponsored i enterprises that are financially protected by the U.S. Federal Government) began to buy qualified mortgage loans from lending institutions and used the mortgages as collateral to issue securities. From the government’s standpoint, key goals such as expanding the available mortgage funding and increasing home ownership were all achieved by the creation of Fannie Mae and Freddie Mac. The investor in these newly issued mortgage pass-through securities or mortgage-backed securities (”MBS”) received a pro-rata share of the interest and principal payments made by the borrowers. The creation of Fannie Mae and Freddie Mac MBS made investing in mortgages much more appealing because the investors received a timely payment each month, regardless of whether or not the borrowers made their monthly payments. Additionally, securities backed by Fannie Mae and Fred-; die Mac did not need to be evaluated by rating agencies because of the support from the U.S. government. That being said, Fannie Mae and Freddie Mac were very selective in the types of mortgages they purchased. In fact, the U.S. government would only allow certain loans—which became know as “conforming” loans—to be purchased by Fannie Mae and Freddie Mac. For a loan to be considered conforming it needed a specific debt-to-income ratio and the borrower’s employment and income had to be verified. Additionally, restrictions were placed on the size of the loan. In 2007, the Fannie Mae and Freddie Mac limit for single-family homes and condominiums was $417,000.

While Fannie Mae and Freddie Mac offered investors an investment vehicle without credit risk, these types of MBS had significant interest rate risks. When interest rates fall, many borrowers refinance to take advantage of the lower rates. In fact, the average 30-year mortgage is paid off in roughly 18 years. These prepayments by borrowers harm investors because the MBS managers must reinvest principal at lower investment rates. Conversely, if interest rates rise, mortgage prepayments come in slower than initially estimated and harm the investors because the MBS managers cannot reinvest as much of the principal at the new, higher interest rate. While the effect of fluctuations in interest rates and the borrower’s prepayment speed could be estimated and incorporated into the MBS payment models, Fannie Mae and Freddie Mac MBS were still not as attractive to some investors as non-callable bonds and investors began looking for other ways to invest in mortgages.

By the 1990s, with the MBS framework firmly established and the passage of several federal acts which made creating MBS more advantageous, financial engineers and Wall Street investment bankers began designing “private” MBS for all types of mortgage loans. The first step in the process was to form a bankruptcy-remote Special Purpose Trust (”SPT”). The SPT was formed specifically to purchase mortgage loans from the banks or mortgage companies which originated the loans. The creation of an SPT shielded the originator from liability since the transaction was considered a sale of the loan and was immediately removed from the originator’s financial statements. From an economic standpoint, the aggregate amount of loans used to create a SPT is often more than $100 million. Once the loan pool has been set, an investment bank is engaged to complete the securitization process. Since the private MBS had no government involvement, the MBS also had to be rated by an accredited rating agency so that investors could gauge the credit risk associated with the

MBS. The process and methods used by rating agencies such as Standard & Poors and Moody’s included many assumptions about default rates, credit ratings, and even an analysis of the loan originator. Unlike its predecessors, these private MBS often contained a variety of complex customized classes which became known as tranches—the French word for slice. Each tranche contained different financial models that would often vary with regard to coupon rates and priority of principle repayment.

Beginning with the housing boom in 2000, mortgage companies began to become increasingly aggressive in extending credit and loans to borrowers. The term “subprime” became the industry buzz word to refer to the practice of making loans to borrowers with compromised credit who could not otherwise qualify for market interest rate loans. In fact, it was not uncommon to extend loans to borrowers who could not provide documentation for income and whose credit report indicated a history of late payments to creditors. Additionally, problems with the loan-to-vaiue ratio or even a previous bankruptcy filing ultimately did not affect a borrower’s ability to obtain a mortgage. Loan originators and lenders all financially benefited by extending these types of loans as the increased risks in these borrowers created higher loan fees and interest rates for lenders.

As the real estate market continued to thrive throughout the mid 2000s, the subprime mortgage market exploded from $100 billion in new loans in 2001 to over $600 billion in new loans in 2006. By 2007, the value of U.S. subprime mortgage market was conservatively estimated at over $1 trillion. However, many of these loans were no longer on the books of the original lenders because they had been securitized and sold to Wall Street firms. In fact, many mortgage lenders chose to pass the rights to its subprime mortgage payments—and more importantly the related credit/default risk—to Wall Street firms who eagerly peddled MBS to end investors as conservative “bond-like” investments. Investors had little reason to question Wall-Street’s representations as rating agencies such as Standard & Poors often extended a “AA” or “AAA” raring (its highest ratings) to MBS which were heavily concentrated in high-risk subprime loans.

Once the housing boom cooled in 2006 and 2007, home prices began to decline throughout much of the U.S. and borrowers who had exotic loans with “teaser” rates had difficultly refinancing. In fact, it is estimated that the value of subprime adjustable-rate mortgages resetting to higher rates in 2008 will be over $500 billion. This fact, coupled with many borrowers succumbing to the overall U.S. economic downturn, virtually guarantees that default rates and foreclosures will continue to increase before stabilizing. As the default and foreclosure rates increase, MBS payment streams are crippled and investors in subordinate tranches may never recoup their initial investment in the MBS. Realizing the foregoing, Standard & Poors has downgraded over 16,000 tranches of U.S. residential MBS and related investments.

With the total subprime related losses estimated in the range of $250-$400 billion, the question now becomes who should ultimately bear responsibility for the subprime crisis? Should the mortgage brokers/ mortgage lenders whose lax standards led to the origination of millions of high-risk subprime loans be held accountable? Do the Wall Street investment bankers who- engineered complex MBS utilizing subprime mortgages as collateral have any legal exposure? Should the brokerage firms who sold

billions of dollars of subprime-based MBS to unsuspecting investors be liable? Are the rating agencies who rubber-stamped sub-, prime MBS with “bond-like” ratings to blame? The answer, at this early stage, appears to be that everyone who participated in the subprime securitization process is finding themselves named parties in various lawsuits. To date, there have been over 500 federal lawsuits—many of them class actions—which target a variety of defendants. The simplest set of plaintiffs is individual borrowers who now are in default of their mortgages or are facing resetting interest rates which make their monthly payments financially onerous. Many of these plaintiffs are bringing claims against the lenders and mortgage brokers based on “predatory lending” and “misrepresentation” type claims and allege that the lenders and brokers falsified applications and included misleading and confusing language in the loan documentation. Many of the consumer claims also allege violation of state “deceptive trade practice” statutes.

The. second type of claim involves the investors who purchased subprime based MBS. Not surprisingly, many of the investor suits allege that the issuers failed to adequately perform due diligence and made material misrepresentations with regard to the underlying collateral of the MBS. In addition to the issuer type claims, suits are just starting to emerge against the rating agencies. These types of suits focus on “conflict of interest” claims. Specifically, the suits claim that the agencies such as Standard & Poors who were rating the investment firm’s MBS were biased because the investment firms were in fact the ones paying the agencies bills. Although few suits have been filed, there remains the possibility that accountants, auditors and lawyers who participated in the formation and sale of subprime laden MBS may also be named in lawsuits. Lastly, Attorney General Offices throughout the country, along with other governmental agencies, have all launched investigations into the subprime lending practices.

In conclusion, the extent and scope of litigation arising from the subprime meltdown is still very much unknown. However, given the types of suits being filed and the various legal principals being used to prosecute claims, it would appear that anyone who had a hand in the subprime process would be susceptible to being sued.

by Kyle M. Kulzer, Esquire

and Alan L. Frank, Esquire, C.P.A.

Firm fires broker who complains of market timing

Stein v. Prudential Secs., Inc., N.Y. Stock Exchange.

Firm fires broker who complains of market timing: Defamation: Wrongful termination: Economic losses Reputation damage: Arbitration award.

In 1998, a large securities firm, Prudential Securities, Incorporated, hired Stein, who had handled over 1,000 clients at another securities firm. Stein learned in 2002 that some coworkers were market timing and late trading, both of which are prohibited. Prudential failed to do anything to correct the actions, allegedly because it wanted to inflate its revenues in preparation for an impending merger with another company. Stein contacted several newspapers to tell them what his coworkers were doing, but none of the newspapers expressed an interest in the story. Stein also told his assistant, Petherick, that he had spoken with the reporters.

Shortly afterward, two of the brokers who were allegedly engaging in the prohibited trading confronted Stein about contacting the papers. The branch manager then called Stein into his office and told him to “keep his mouth shut,” threatening that “he was history if he was talking to the press.”

In early 2003, the SEC began auditing the firm on unrelated matters. Prudential confiscated some of Steins files after the SEC received an anonymous letter saying it should investigate Stein and one of his accounts. The account was not set up by him, but by Petherick, who had allegedly created it and forged Stein’s signature. In its investigation into the matter, the company failed to speak to the client, who later sent a letter to the manager and allegedly admitted he had forged his deceased father’s name and instructed Petherick to redeem a bond in the father’s name. Despite receiving the letter, Prudential told Stein that he either had to resign or be terminated, without giving him a reason.

A few minutes after Stein was terminated, the firm’s other brokers immediately began calling his clients to convince them not to leave their accounts with Stein. The brokers told Stein’s clients that he was terminated for “improprieties.” They also allegedly told some clients that they should review their accounts to make sure no money was missing because Stein was terminated for “trading stocks in dead people’s accounts.” The clients chose not to transfer their accounts.

As a result of Prudential’s damage to his reputation, Stein, 47, retained only 50 of his estimated 600 accounts. He had been earning about $852,000 annually at Prudential but earned only about $264,000 in the year after he was fired. His lost income is estimated at about $3 million.

Prudential later filed a form with the state saying that Stein “violated firm policy relating to new account documentation.” Consequently, the state required Stein to testify as to the circumstances surrounding his termination. The state found no wrongdoing on Stein’s part but took no action against Prudential until a newspaper informed the state that it was planning to publish a story about market timing by various firms. An SEC investigation later resulted in civil fraud actions and criminal charges against Prudential and its brokers.

Stein filed an arbitration claim against Prudential and several brokers, alleging defamation in falsely and maliciously stating in the form that he violated firm documentation policy and in making false statements to his clients. Claimant also alleged violations of the state unfair trade practices act, interference with prospective economic advantage, and injurious falsehood. Further, claimant argued that under defendants’ arbitration clause, it had to provide him with a discernible cause for his termination.

Defendants contended claimant was fired for violating firm policy and not because of his whistle-blowing. They also denied that the brokers made derogatory comments to claimant’s clients. Defendants then filed a crossclaim, seeking to recover the pro rata share of his commissions.

The arbitrator awarded claimant about $1.75 million. Claimant’s expert was William E. Harris, forensic economics, Philadelphia, Pa.

Defendants’ expert was Michael Soudrey, forensic economics, New York, N.Y.

 

Claimant’s Counsel

Alexander J. Palamarchuk, Elkins Park, Pa. Lisa G. Faden, Elkins Park, Pa.

NASD as a forum for claims involving stockbroker misconduct

By KyleM.Kulzer

During the last several years, we have seen unprecedented fluctuation in the equity markets in the United States. This phenomenon, coupled with corporate scandals and questionable accounting practices, has resulted in securities litigation becoming one of the fastest growing areas of practice in the legal community.

One cannot turn on the television set without seeing headlines involving the Securities and Exchange Commission investigating a company or the New York State Attorney General’s Office prosecuting an investment firm for violations of securities laws.

In addition to criminal proceedings, there are also a variety of civil suits working their way through both state and federal courts against well-established brokerage firms for their conduct during the Internet and high-technology boom of the late 1990s.

 

Despite this flurry of activity, the average investor who feels scorned by their investment firm or stockbroker is often left with the question – what is my remedy? For most investors, his or her only remedy is to file an action with the National Association of Securities Dealers, Inc. (NASD).

Pursuant to federal law, every securities firm is a member of the NASD. The NASD membership consists of over 5,200 brokerage firms and more than 653,000 registered securities representatives. The NASD oversees virtually every aspect of the securities industry, including the adjudication of disputes between investors and their stockbrokers, via its Dispute Resolution program.

Dispute Resolution is the largest securities dispute resolution forum in the world and handles over 90% percent of all securities arbitrations and mediations in the United States. The NASD hears a wide variety of customer claims, ranging from an investor who is unhappy with the investment advice provided by his or her broker, to a brokerage firm’s mishandling of an employee’s stock options. NASD maintains jurisdiction over such claims primarily through mandatory participation by its member firms and registered representatives and binding arbitration clauses contained in account creation forms signed by customers.

The number of arbitration filings with NASD has grown swiftly over the last decade, from 3,617 in 1990 to nearly 9,000 claims in 2003. This trend shows no signs of easing and it is estimated that over 10,000 NASD arbitrations will be filed by the end of 2004.

Attorneys must be mindful that significant aggregate losses do not in themselves equate to liability on behalf of the brokerage firm or the broker. In fact, you would be hard pressed to find someone who didn’t lose money during the bear market over the last three years, and there is certainly no shortage of people who are dissatisfied with the way their broker managed their investment accounts. When evaluating claims, it is necessary to conduct a thorough analysis of all available documentation, including account creation forms, account statements and trade confirmations. It is also necessary to solidly understand the different theories of liability typically used to prosecute securities claims in order to successfully evaluate a case.

While each case varies, telltale signs of broker misconduct include: brokers who engaged in any highly speculative option trading or who had their clients utilize a margin account, especial-

ly if done so without the consent of the customer; brokers whose investment strategy was clearly at odds with the investor’s investment objectives; brokers who placed a disproportionate amount of a customer’s assets in a single market sector or in a high risk equity; and brokers who made excessive trades in order to reap higher commission fees.

Even if there are signs that a broker acted inappropriately, however, the stock market is intrinsically risky and your client must be able to clearly demonstrate why a broker or brokerage firm is liable for a customer’s losses before an arbitration claim should be filed with NASD.

Once the decision has been made to move forward with a claim, the NASD Code of Arbitration Procedure (NASD Code) sets forth all the rules and regulations which govern the arbitration. The first step in the process is for the claimant to file what is commonly referred to as a Statement of Claim. The Statement of Claim, much like a complaint in a civil action, sets forth a detailed narrative of the facts of the case and the legal counts of liability.

The NASD Code does not specify a particular format so the Statement of Claim often varies with each attorney. At a minimum, the Statement of Claim should set forth a detailed description of the brokerage firm or broker’s conduct and the statutes and/or rules and regulations that were allegedly violated.

Typical causes of actions alleged in a Statement of Claim often contain one or more of the following counts: churning or excessive trading; violations of the NASD and NYSE suitability rules; violation of section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5 promulgated thereunder; violation of New Jersey Uniform Securities Act; professional negligence; breach of

fiduciary duty; failure to supervise; and breach of contract.

In addition to the Statement of Claim, you must also file a Claim Information Sheet, which contains an array of important information such as the customer’s account numbers, the brokerage firm’s CRD number, and a computation of the alleged damages. Once the Statement of Claim and Claim Information Sheet are submitted to NASD, it is assigned to a case manager who then serves it on the named respondents.

After service, a respondent has 45 days in which to file an answer. Shortly thereafter, NASD begins the process for selecting an arbitration panel. For claims of $50,000 or less, NASD will only assign one arbitrator to the case. For claims above $50,000, NASD typically allots three arbitrators.

Both the claimant and respondent receive an initial arbitrator selection form, which contains a list of 20 or so arbitrators from the more than 7,000 arbitrators currently registered with NASD. The arbitrators are divided into “public” (those who have never worked in the securities industry) and “industry” (those who have worked for a brokerage firm or in a securities related position).

The arbitrator selection form often contains arbitrators with a diverse cross-section of professionals from all walks of life and includes a detailed listing of the arbitrator’s education, training courses, employment history and recent arbitration rewards. Both parties have the option of striking any arbitrator from the list and that party will automatically be removed from the panel selection process. Thereafter, claimant and respondent rank the remaining arbitrators in numerical order. Once NASD receives the ranking forms from both parties, the case manager attempts to select a mutually agreed upon panel. The final step in the process is to select an arbitration chair, who typically is an attorney due to his or her familiarity with the NASD procedural rules and regulations.

After a panel is complete, a pre-hearing conference takes place in which the parties agree to discovery dates, motions dates, and the arbitration date. To facilitate discovery, NASD has implemented the NASD Discovery Guide, which attempts to minimize discovery disruptions and standardize the discovery process.

For example, the NASD Discovery Guide sets forth a list of ^ documents for both the claimant and respondent that NASD considers presumptively discoverable. On the claimant’s side, a person must produce his or her tax returns; financial statements; notes; diaries or calendars relating to the customer’s accounts; documents showing action taken by the customer to limit losses in the transactions at issue; resumes and even a listing of the claimant’s educational history.

On the respondent’s side, a brokerage firm must produce all account statements for the customer’s accounts; all correspondence between the customer and the brokerage firm and/or the broker, all sections of the brokerage firm’s compliance manuals relating to the claims alleged in the Statement of Claim; and all recordings of telephone calls or conversations about the customer’s accounts. NASD discovery also differs dramatically from discovery in typical litigation in that it does not allow for depositions or interrogatories. Overall, both claimant and respondent are limited in what type of information they can request during the discovery process.

Once discovery has concluded, the final step in the process is the actual arbitration. The arbitration is typically held in the city closest to the claimant and normally takes anywhere from 3 to 5 days. Each party is allowed to present witnesses, including experts, as well as any documentation they may have to support their claim. After each side presents their case, the arbitrators adjourn to decide the case and typically enter a finding within a few weeks. If an award is entered, the respondent has 30 days to pay or NASD may initiate proceedings to suspend the respondent’s license.

If a brokerage firm or broker is no longer in existence or has gone out of business, it can be very difficult to collect an award since NASD’s only enforcement power is to suspend a member’s securities license. If a respondent is no longer conducting business, the threat of suspension has little effect and typically will not prompt payment. If a claimant

finds himself or herself in this precarious position, they may want to try to enforce the award pursuant to either federal or state laws.

For example, NASD awards have been successfully enforced via the Federal Arbitration Act, which allows for arbitration awards to be converted into court judgments. Based on the foregoing, it is very important to investigate the broker and brokerage firm before filing a Statement of Claim. Over 80% of all unpaid awards relate to brokers or brokerage firms that were out of business or filed had filed for bankruptcy.

Lastly, it is not unusual to settle a case prior to arbitration. In fact, more than half all filed arbitrations end with a settlement between the parties prior to the arbitration date. In 2001, approximately 3,600 cases were resolved, but only 1,365 of the cases actually went to arbitration. Of that amount, 725 of cases resulted in the arbitrators awarding damages to claimant.