Feb 24 Allegations of bad behavior at the Boca
Raton, Florida, office of Wall Street's industry-funded watchdog
are igniting concerns about how the Financial Industry
Regulatory Authority (FINRA) manages its securities arbitration
A wrongful termination lawsuit against the regulator filed
this month in the U.S. District Court for the Southern District
of Florida by Jill Wile, a former deputy regional director,
paints a picture of supposedly independent arbitrators enjoying
a champagne toast after the end of a case and a staff member
saying he wished older arbitrators would die and ridiculing
Linda Fienberg, head of FINRA's arbitration unit.
FINRA has denied the allegations in a response to a separate
complaint that Wile filed with the Equal Employment Opportunity
Commission last year. A FINRA spokeswoman declined to comment on
Wile's allegations have become a hot topic among lawyers for
both investors and brokerages. Her lawsuit raises questions
about the neutrality of FINRA arbitrators and the regulator's
process for removing arbitrators.
The champagne toast, for example, came immediately after the
end of a highly publicized and drawn-out case. FINRA arbitrators
and staff members raised their glasses in a FINRA conference
room after ordering Bank of America Corp's Merrill Lynch unit
to pay $10.2 million to two former brokers in 2012,
according to Wile's Feb. 11 complaint.
Those present were not celebrating the case's outcome, but
simply that the nearly four-week-long hearing was over, said
Fred Abramoff, a Miami-based arbitrator who was there. Also in
the room where the drinking occurred was Manly Ray, the
southeast regional director of FINRA's dispute resolution office
and two other staff members, Wile alleges.
"I would be livid," said Jonathan Uretsky, a New York-based
lawyer who represents brokerages. "It's so easily foreseeable
how that could come across wrong," said Uretsky, who was not
involved in the case.
A spokesman for Bank of America's Merrill Lynch unit
declined to comment.
ALLEGATIONS OF AGEISM
The 52-year-old Wile, who had nearly 25 years with FINRA,
alleges she was wrongfully fired because of her gender, age, and
an anxiety condition. FINRA has not yet responded to the
lawsuit, but it will first likely try to get the court to
dismiss the suit, say lawyers.
Wile's separate EEOC complaint is also pending. She must
prove the difficult standard of "intentional" discrimination to
receive back pay and other damages.
According to Wile's complaint, Ray, the regional director,
frequently joked about FINRA's older arbitrators, saying he
hoped they would die before he had to "go through the trouble"
of having to track them in a process for problem arbitrators.
Ray also joked about Linda Fienberg, who heads FINRA's
arbitration unit, because she is in her 70s, Wile said in her
Ray declined to comment. Fienberg wasn't immediately
available for comment.
Wile also alleged that FINRA violated federal disability law
by forcing her to speak publicly and participate in a mock
arbitration despite her long history of having panic attacks and
an anxiety disorder.
SPOTLIGHT ON REMOVAL
Wile's lawsuit also sheds light on FINRA's handling of
arbitrators in a contentious case against Merrill Lynch filed by
an elderly couple who accused the firm of misconduct in handling
Merrill's lawyer complained to Wile during the hearing in
2011 that the three arbitrators hearing the case were showing
bias and engaging in misconduct, including making accusations
against witnesses. The arbitrators finished the case, ordering
Merrill to pay $540,000. FINRA, however, eventually removed the
arbitrators from its roster.
Their removal set off a fire storm of press coverage and
criticism by lawyers for investors after the arbitrators' plight
publicly surfaced in 2012. At least one of the arbitrators
complained to the U.S. Securities and Exchange Commission. FINRA
later reinstated the arbitrators, also in 2012. Merrill tried to
overturn the award in court and lost.
Wile alleged FINRA wrongly blamed her for the arbitrators'
removal. She was the first to review recordings of the
proceedings and recommended only counseling for the arbitrators.
But her superiors urged her to change her recommendation to
removal, she said. They even told her what to write in a memo to
justify the recommendation, Wile said.
FINRA procedures would have required that two other
officials, including Fienberg, as well as a FINRA arbitration
committee sign off on the removal, Wile said. Nonetheless, Wile
took the heat for the removal, she said.
"We had assurances from FINRA that their process followed
FINRA's written policies for (removing arbitrators)," said
Jeffrey Wittenberg, a lawyer in Santa Monica, California, who
represented two of the arbitrators. "But these allegations raise
serious questions about the integrity of the process."
Several securities arbitration lawyers interviewed by
Reuters described Wile as competent and professional.
The champagne toast was controversial and, if disclosed, may
have affected the final outcome of the case. In Wile's
complaint, she said she believed the toast was inappropriate
because FINRA and its arbitrators are supposed to be impartial,
according to the complaint. Wile later reported the toast to a
senior FINRA official so he could determine whether to disclose
the incident to Merrill. He did not take action, Wile said.
By then, Merrill had filed a court petition to overturn the
award, claiming the arbitration panel's chairwoman, Bonnie
Pearce, was biased against the brokerage and did not disclose
that she was married to a lawyer who represented clients against
Merrill. It was later revealed that Merrill knew about Pearce's
husband before the start of the hearings. The court denied
Merrill's petition in September, 2012. Pearce did not return a
call or reply to an email requesting comment.
It is unclear whether FINRA disclosed the toast. Several
lawyers have told Reuters they believed a toast in FINRA's
offices was inappropriate. "At least, go to a restaurant or a
bar," Uretsky said.