FINRA Removes Arbitrators in Stifel Case, Drawing Scrutiny Over Impartiality Standards
From the desk of Jim Eccleston at Eccleston Law
FINRA agreed to remove two potential arbitrators from an upcoming Stifel Financial arbitration tied to former Miami-based broker Chuck Roberts, a move that Stifel disclosed in a recent court filing and that AdvisorHub reported could carry broad implications for investor arbitration.
According to AdvisorHub, Stifel is seeking to vacate a $133 million arbitration award and asked FINRA to strike two arbitrator candidates who had previously ruled against the firm in cases involving Roberts. FINRA granted the request after concluding that the arbitrators’ prior rulings raised reasonable questions about impartiality.
In a letter reviewed by AdvisorHub, FINRA stated that it is reasonable to infer bias or a lack of impartiality when arbitrators have previously awarded substantial damages and attorneys’ fees in matters involving the same firm, the same financial advisor, related supervisors, and similar products.
FINRA agreed with Stifel’s argument that the chair of an earlier panel demonstrated bias by ruling against the firm in a prior Roberts-related case.
Plaintiff-side attorneys criticized FINRA’s action and described it as a break from established legal standards, according to AdvisorHub. Michael C. Bixby, president of the Public Investors Arbitration Bar Association, said courts have long rejected the idea that service in a separate case shows evident partiality. He warned that the decision favors the financial industry by allowing firms additional opportunities to remove arbitrators who previously ruled for investors.
Adam Gana, the immediate past president of PIABA, echoed those concerns in comments cited by AdvisorHub. Gana said repeat players could systematically disqualify arbitrators simply because they once ruled against them, even though prior adverse rulings do not qualify as conflicts under existing legal authorities.
Defense-side practitioners offered a different perspective. Tom Lewis of Stevens & Lee told AdvisorHub that any precedential value of FINRA’s letter will likely remain limited and available to both sides, since investors could seek arbitrator removals on the same basis. Lewis also described the $133 million award against Stifel as extreme and said it would likely prompt a court to review whether the outcome was appropriate.
Another industry lawyer, who spoke anonymously to AdvisorHub, supported Stifel’s motion and said it is reasonable to question whether an arbitrator who previously issued punitive findings against the same firm and broker could approach a new case without preconceived views.
As AdvisorHub explained, FINRA’s decision allows Stifel to preserve its allotted arbitrator strikes under FINRA rules, which give both parties three lists of potential panelists and permit each side to remove a set number for any reason. By removing the challenged arbitrators at the outset, Stifel retains more flexibility in narrowing future panels.
The legal fallout connected to Roberts continues for Stifel. According to Roberts’ BrokerCheck record cited by AdvisorHub, customer claims totaling nearly $75 million have resulted in approximately $196 million in arbitration awards and settlements. In mid-December, another investor filed claims seeking $1 million and alleging breach of fiduciary duty, negligence, fraud, breach of contract, and violations of the Securities Exchange Act and the Florida Securities and Investor Protection Act.
Roberts accepted an industry bar in July rather than cooperate with a FINRA investigation and resigned from Stifel two weeks earlier, according to AdvisorHub. Lewis said FINRA’s letter effectively gives Stifel a clean slate in pending matters by ensuring that arbitrators with no involvement in prior awards will hear the remaining cases.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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