Tuesday, January 22, 2013

FINRA Dispute Resolution Statistics 2012

By Tim Dulaney, PhD

Last week, we covered NERA's analysis of SEC settlements during FY2012.  This week, we're taking a look at FINRA's recent release of their dispute resolution summary statistics.   FINRA arbitration is a common way for investors to pursue restitution for damage caused by fraud, negligence, or other fiduciary breaches.   FINRA provides a detailed summary of the arbitration process and claims can be filed either online or by mail.

Through December of this year, FINRA reports that the number of new case filings have fallen just over 9% from 4,729 in 2011 to 4,299.  The following figure illustrates the number of cases filed and cases closed each year since 1997 and through December 2012 -- the peak to peak difference in timing is consistent with FINRA's 12-15 month turnaround time for the arbitration process.
As of December 2012, the number of disputes involving unauthorized trading increased by nearly 10% and the number of cases involving churning saw a modest 4% increase.  On the other hand, the number of arbitration cases involving virtually every other type of controversy -- e.g. negligence or misrepresentation -- saw a 15% decline.  FINRA's summary also shows that the percentage of cases in which customers were awarded damages was essentially unchanged at 45% from 2011 and down from the five-year high in 2010 of 47%.

Arbitration filings involving corporate bonds continued their decline from the 2009 high of 373 cases to only 124 cases filed through December 2012.  The number of cases involving variable annuities was the only category to see an increase in the number of FINRA filings.  The most dramatic decline occurred within the derivative securities segment -- down 85% from 2011, 96% since 2010 and 99% since 2008.  These statistics suggest that, at least in the short term, variable annuities represent an area of risk for potential investors.

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