Monday, June 19, 2006

THUMB ON THE SCALES? -- Because private arbitration of brokerage cases has become so ubiquitous, some have begun to ask whether the system is fair:
In theory, private arbitration panels are supposed to offer a fast and fair system in which customers can resolve complaints with their brokers. Last year, according to NASD, the average turnaround time for a case was 14.3 months, down from 15.4 months in 2004. In 1995, the average was 10.5 months.

But from start to finish, the securities industry itself oversees the arbitration process. Brokerage firms require clients to file grievances with private arbitrators, not in state or federal court. Arbitration is the only forum that investors can use to resolve disputes — opening the door to the possibility of lax enforcement or, at worst, outright compromises of the system.
Arbitration is big in other industries as well, and is a more common feature in even basic commercial relationships. At what point does all of this private "justice," in which the party with bargaining power can dictate the terms of dispute resolution, undermine the most basic notion of law, equal justice under law?