Tuesday, August 14, 2012
Study Suggests That Arbitrator Background and Claimant Representation Affect Securities Arbitration Outcomes
Stephen J. Choi, Jill E. Fisch and Adam C. Pritchard have posted a paper on SSRN entitled “The Influence of Arbitrator Background and Representation on Arbitration Outcomes.”
The conclusion states:
In this study we examine the relationship between an arbitrator’s background and the outcome in securities arbitration. For the public arbitrators, we find that industry experience and status as a professional arbitrator are correlated with statistically significant decreases in arbitration awards. This decrease, however, is tempered when claimant is represented by counsel. We also find that prior experience as a regulator for the public arbitrators is correlated with a statistically significant increase in arbitration awards. We do not find substantial evidence that the presence of an attorney for the respondent mitigates this effect. Turning to the industry arbitrator, we find that industry arbitrators with regulatory experience correlate with a statistically significant decrease in arbitration awards. This effect, however, is mitigated when the claimants have an attorney.
Our findings have important implications for how FINRA regulates arbitrator background into the future. Our most consistent finding is that representation by counsel can reduce or eliminate the effect of arbitration background on arbitration outcomes. Supporters of arbitration often highlight its streamlined proceedings and lower costs compared to litigation as an advantage for small claimants. Our findings suggest that, even with streamlined procedures, claimants who lack attorneys are disadvantaged.