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Thursday, May 08, 2008

Calling for an Investor's Bill of Rights

While the presidential candidates have been aggressively courting homeowners with mortgages under duress, they seem to care little for the rights of individual investors. As today's New York Times points out, these are grim days for investors who have fraud claims. Recent Supreme Court decisions including "Tellabs" and "Stoneridge", which as we've blogged about previously, have raised the bar for what constitutes fraud and limited third party liability (i.e., investment banks, law firms, accounting firms, etc. that are alleged to have contributed to fraud).

That's why I believe an investor's bill of rights should be on the table. Candidates can sign-on or reject its provisions – at least then we would know where they stand. Among the provisions I suggest are:

  • Right to an SEC which protects investors: Only SEC commissioners who actually accept the agency's mission of protecting investors (rather than cozying up to Wall Street interests) should be nominated.

  • Right to fair arbitration hearings: The first step towards balancing the arbitration process is to eliminate the industry panelist on three-member arbitration panels. An arbitration panel should consist of individuals who are conflict free and representative of the universe of American investors.

  • Right to tax-free awards: In many cases, claimants are required to pay taxes on arbitration awards, punitive damages and attorney's fees. To me, this rubs salt in an aggrieved investor's wounds.

  • Right to an honest broker: If a broker has three or more arbitration awards against him or her, it's clear that they are abusive towards their customers. I propose a "three-strikes-and-you're-out" rule. After the third award, a long-term suspension should be levied.

Proxy rights, executive compensation and other important investor issues should be considered as well.

And since we are on the topic of presidential candidates and Supreme Court decisions, they should pledge to balance the court's anti-investor bias. Its fine to say that you are for the traditional interpretation of the Constitution as Senator John McCain has, but one must focus on how that affects investors – both big and small.

The Supreme Court has reversed over 70 years of case law which expanded investor rights in securities cases. Enough is enough. The next Supreme Court nominee should not be confirmed if he or she shows disdain for investor rights.

One additional note on the aforementioned New York Times article: while it does a good job of explaining new hurdles for investor lawsuits, it doesn't cover arbitration. Many investors – institutional and individual – are better suited by filing claims against brokerages using FINRA-sanctioned arbitration proceedings. Though the deck is still stacked, investors certainly fare better than in class actions especially in light of the recent Supreme Court decisions.

Candidates: Let's see where you stand.



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