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Massachusetts Regulators Urge SEC To Consider Banning Pre-Dispute Agreements

In November 2012, the Financial Industry Regulatory Authority, Inc. (“FINRA”) announced that it would begin hearing disputes between registered investment advisors and investors if the registered investment advisor and investor entered into a pre-dispute agreement which designated FINRA as the forum to adjudicate their disputes. Recently, on February 12, 2013, William Galvin, the Massachusetts Secretary of the Commonwealth, sent a letter to the Securities and Exchange Commission (“SEC”) urging the SEC to ban registered investment advisors (“RIA”) from requiring investors to execute pre-dispute agreements. Generally, a pre-dispute agreement requires an investor to waive their right to bring file a lawsuit in court regarding a dispute with their RIA, and instead, requires such a dispute to be arbitrated either before the American Arbitration Association (“AAA”) or FINRA. Mr. Galvin made a statement to news reporters that, “[t]here tends to be a very personal relationship between an investment adviser and clients, and the facts [in a dispute] are very important,” and “turn on statements made. So an investor shouldn’t be precluded from court.” It will be interesting to see whether other state securities regulators will file similar letters with the SEC, and how the SEC will respond to Mr. Galvin.

Lax & Neville LLP effectively assists investors, on both a regional and national level, that may have suffered losses as a result of their broker dealer or RIA’s sales practice abuses. Indeed, Lax & Neville LLP has victoriously arbitrated numerous arbitrations on behalf of investors in both the AAA and FINRA. Please contact our team of securities fraud attorneys for a consultation at (212) 696-1999.