The Financial Industry Regulatory Authority yesterday detailed a special arbitration procedure for investors who suffered "consequential damages," such as losses that resulted from their inability to liquidate their auction-rate securities for cash.
"This special arbitration procedure will provide swifter resolution at reduced cost for customers claiming consequential financial harm related to the sudden and widespread inability to liquidate auction-rate securities into cash earlier in the year," Linda Fienberg, president of FINRA Dispute Resolution, said in a release. The ARS market froze in February after broker-dealers stopped supporting the auctions.
"Firms will not be able to contest liability with respect to the illiquidity of ARS holdings or ARS sales," Fienberg said in the release.
However, the special procedures will be limited to investors seeking only consequential damages. "Investors who wish to pursue punitive and other damages as part of their claims can opt for the standard FINRA arbitrage procedure," Fienberg said.
Under the special procedures, which will be available to investors who sold their ARS holdings back to firms under regulatory settlements, firms will pay all of the fees related to the arbitration, including those related to the hearing session and the expenses of the arbitrators.
Claims of less than $1 million will be decided by a single, qualified public arbitrator. In cases involving claims of $1 million or more, the parties can mutually agree to expand the panel to include three public arbitrators.
Complete details of the special procedures can be found on the Web site,
