FINRA Takes Steps to Restrict Non-Lawyer Representation in Investor Arbitrations

Posted on October 20th, 2023 at 1:22 PM
FINRA Takes Steps to Restrict Non-Lawyer Representation in Investor Arbitrations

From the desk of Jim Eccleston at Eccleston Law 

The Financial Industry Regulatory Authority (FINRA) has proposed a new rule prohibiting individuals who are not lawyers from receiving compensation from representing parties in its arbitration forum.

FINRA distinguished between compensated and uncompensated non-lawyers representing investors. Under the proposed rule, FINRA would permit individuals who are in the process of becoming lawyers, such as law school students participating in a clinical program under attorney supervision, to represent investors in the forum. Additionally, it would allow non-compensated representatives like friends and family members to continue representing investors. According to AdvisorHub, FINRA conducted a review in response to concerns from users of the arbitration and mediation forum before making this proposal.

FINRA reported that only 1 percent of investors using the forum are represented by paid non-lawyers. Those individuals typically have backgrounds in the securities industry and primarily handle arbitration or mediation claims against broker-dealers and their associated persons, according to FINRA. In rarer cases, they represent associated persons in expungement claims against broker-dealers.

However, FINRA's review uncovered several recent allegations of improper conduct by those non-lawyers. For example, California regulators discovered one instance where a non-lawyer made false promises to assist customers in recovering past failed investments and violated state rules by charging advance fees. Additionally, another compensated non-lawyer representing an investor in FINRA's dispute forum faced criminal sentencing in New York for felony grand larceny after attempting to defraud and falsifying business records related to a matter before an arbitration panel, as reported by FINRA.

 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law, finra

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