Securities regulators to target investment policy at conference
Jeffrey D. Allred, Deseret News
SALT LAKE CITY — If you suffer injury or harm at the hands of a physician or lawyer that you deem to be malpractice, you have the option of suing in court.
But if you suffer financial harm that you deem to be malpractice at the hands of your investment broker, current law requires investors to accept mandatory mediation as their primary method of redress for grievances.
Critics argue the law too heavily favors brokerages at the expense of individuals, while supporters claim mediation or arbitration is a much less expensive alternative to litigation that can offer fair resolutions to disputes.
The issue of arbitration fairness will be among various topics of discussion when the three-day North American Securities Administrators Association's fall conference begins Sunday at the Grand America Hotel, 555 S. Main.
Approximately 500 association members are expected to attend the conference that brings together securities regulators, securities law professionals, financial services industry representatives and consumer advocates, along with legislative and regulatory policymakers.
Organized in 1919, the North American Securities Administrators Association is the oldest international organization dedicated to investor protection. The organization is a voluntary association whose membership consists of 67 state, provincial and territorial securities administrators in the U.S., District of Columbia, Puerto Rico, U.S. Virgin Islands, Canada and Mexico.
The association held its inaugural conference in Salt Lake City in 1922 and most recently was in Utah's capital city in 1996. The mandatory mediation issue has been a concern for many regulators for years, and some would like to see the matter reconsidered.
“If you sign up for a brokerage account, you have to sign an agreement that requires you to submit disputes to binding arbitration,” explained Keith Woodwell, director of the Utah Division of Securities — the state agency responsible for licensing and regulating broker-dealers, investment advisers and their agents and representatives in the state. “You can’t sue them. They force you into an arbitration system.”
Woodwell said the association believes the system is skewed in favor of the brokerage industry, and the U.S. Securities and Exchange Commission has recently been given the authority to “do away with those mandatory arbitration clauses.”
He said regulators will hear from analysts on both sides of the issue during the conference.
Among the supporters of the current law is Ira Hammerman, senior managing director and general counsel for the Securities Industry and Financial Markets Association — a securities industry trade group representing securities firms, banks and asset management companies in the U.S. and Hong Kong.
Hammerman said the current law was upheld by the U.S. Supreme Court in 1987 and has been used to resolve thousands of cases since then.
“What has developed (since 1987) is a system that is very fair, very fast and serves customers extremely well when compared and contrasted to typical court-based litigation,” he said.
Woodwell said the matter has been a hot-button topic at the conference for years, and the SEC could reconsider its merits over the next year or two.
Another issue of discussion will be the Jumpstart Our Business Startups Act, or JOBS Act, a law intended to encourage funding of U.S. small businesses by easing various securities regulations. It passed and was signed into law in April.
Woodwell said some provisions of law introduce new rules on marketing for start-up companies looking for investor capital. Since the 1930s, federal law banned such solicitation, he explained.
“You could not put up billboards or advertise on television,” Woodwell said. “A month ago, the SEC passed a rule that allowed companies to advertise their offerings.”
He said there are concerns from regulators that less savvy investors “are not really equipped to adequately evaluate whether or not these are good opportunities.”
The potential fallout could be dramatic for some people if they invest unwisely, Woodwell said.
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