William Cohan has been on a tear lately. Lehman, Goldman, MF Global — he has been shooting at all of the big targets.

Last week, he took aim at the “Kangaroo Court” that passes for “Wall Street Justice.” He was of course referring to the FINRA system of arbitration. Cohan called it “the largest ongoing abdication of legal rights in America today“:

“Probably unbeknownst to the millions of people who interact with Wall Street every day — either as brokerage customers or as employees of Wall Street firms — there is a price of admission to this world tucked deep inside the boilerplate documents that one must sign to open an account or to get hired. This catch is a nonnegotiable agreement for when disputes arise, say, about a bonus promised but not paid, or about a rogue broker who sticks his client’s money in a synthetic collateralized debt obligation that goes bust. Under the deal, the only venue to litigate the claim is a mediation or arbitration process overseen and administered by the Financial Industry Regulatory Authority, Wall Street’s powerful self- regulatory organization.

Finra oversees some 4,460 brokerage firms and 630,000 registered representatives, mostly brokers, traders and bankers. By signing the initial agreements — and if you don’t, you can forget about working on Wall Street or having a brokerage account with a Wall Street firm — you agree not to pursue any future monetary claim against Wall Street in the U.S. court system.” (emphasis added)

This time, Cohan is tilting at windmills.

Its not that he is wrong — he is, to the contrary, dead on right. But the simple fact of the matter is that, short of a revolution overthrowing the government, nothing is going to ever change when it comes to FINRA arbitrations. Nothing.


I’ll give you four reasons:

1) Its a complex subject, part of a system that has been in place for decades; That means its not well understood by the public or legislators, there is a broad infrastructure already in place, and there exists enormous institutional inertia;

2) The only time people discover that they have no legal rights is AFTER they have been screwed over by Wall Street. To pursue a legal remedy, you must navigate an arbitration system owned lock stock & barrel by the firms that just screwed you! (Good luck with that!)

3) Nobody with any legislative or judicial authority gives a flying fuck about you the investor. That’s right, I said it: Congress thinks that you, the individual investor, can go fuck yourself.

4) The Court system itself refuses to recognize how utterly corrupt it is for an arbitration system to be owned by the defendants; Lastly, the US Supreme Court itself — a biased, corrupt, ideologically driven embarrassment that has said corporations have the same rights as people — has tolerated this gutter system for years.

In case you are unsure of precisely what I am saying, let me simplify it for you: If you have a dispute with Wall Street, the odds are strongly that YOU ARE FUCKED. Sure, a few people win an occasional arbitration. But they are few and far between — much less than half — and it ain’t because the street is squeaky clean.

We could do a full analysis on the outcomes, but alas, Arbitrations are private. The amount of info available about arb outcomes are neither detailed nor transparent.

Imagine for a moment a world where all of the Repair shops and Automobile Mechanics in the country formed an association. As part of that union, they all agreed that no one would work on any vehicle unless the car owner signed an arbitration agreement. Same goes for the hiring of mechanics — they had to sign as well.

Now imagine when you had a dispute over a repair, you went to the Repair Garage & Automobile Mechanics Arbitration Association. How do you think that would turn out? That is the FINRA arbitration system, only instead of disputes over $600 repairs, its $100,000 of losses — in some cases millions of dollars. What are the odds you will get a fair hearing in this private, opaque, non transparent, literally Wall Street owned system.

Its a national embarrassment, a legal sham. Welcome to the Kangaroo Court of Wall Street . .


Wall Street Justice System Is a Kangaroo Court
William D. Cohan
Bloomeberg, January 12, 2012  

See also
US Supreme Court Declines to Hear Standard Investment v FINRA
Larry Doyle
Sense on Cents January 17, 2012

Category: Investing, Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

32 Responses to “The Kangaroo Court of Wall Street”

  1. kcs says:

    Not that I disagree with you, but : “Sure, a few people win an occasional arbitration. But they are few and far between — much less than half ” doesn’t add much heft to your argument. In today’s society, every time someone books a loss they are looking to blame someone..”But your analyst upgraded FFIV at 117 and I bought it and it is now under 100.” There needs to be some roadblock to frivolous lawsuits, and a pure non-industry group is ill-suited for the role..I would argue less than 10% of FINRA staffers or SEC investigators could pass a Series 7 test, let alone some Judge-for-life.

  2. Futuredome says:

    Wall Street has to be nasty because of the over concentration mess they have gotten themselves into. If the system collapses, the government would basically take over the banking system as we would have a complete financial freeze……for the first time in the nations history. It was the reason why the desperation by the paid off politicians and overseers to build the ‘bailout’. The whole thing blows, the government takes over the banking system, bankers out of power. It was why JFK was shot in 63 after he tried to “nationalize” money creation powers from private banking. Which in term created alliance between the far right and the bankers who thought Kennedy was turning the US into a socialist country. Who knows if they give it back?

    It would be better just to let it collapse and hire private security firms to protect their savings while starving peasants ram at the gate(which is true for capital owners just the same). Things would settle down and they could rebuild……so they hope. It also explains why Wall Street won’t de-concentrate either. They are on a one way course.

  3. BR,

    nice Piece. succinct and straightforward. a Copy, of which, should be given ‘to the young’un’, upon receiving their “Driver’s Licenses”..

    though, We may do well by paying, further, attention..

    this ‘deal’, about “Arbitration”, is, not only, not confined to “Wall Street”, but, also is growing–throughout the Commercial Sphere..


    is one place those ‘adhesion’ Contracts were ‘rolled-back’ (presumably)

    also, here..


    gives rise to, not only, massive PR-spin, but, also the growing ‘Trend’ of “Arbitration”, and the desire to keep Individuals from ‘their Day in Court’..


    it is easy to see that ‘Arbitration’ has been a long-simmering “Legal-Issue” — one, not surprisingly, that has been assiduously avoided by the Corporate-Owned “MSM” …

  4. peachin says:

    Mark, you make – difficult to read – what you write – in prior posts also… of course I could be IQ and ADD challenged. There is a book worth reading… “Strunk and White”…”assiduously avoided” – wordy! and “..” – “-”
    Another book (small also) “How to get your point across in 30 seconds or less” Don’t like to be criticized?
    Actually, the books recommended (both very small) will be a very big +++ (for you) to anyone you deal with. This is free of charge…you’re welcome!.

  5. Savage1701 says:

    Too bad Mr. Cohan minces words and holds back on his emotions; alas, I fear we will never know what he really thinks or how he really feels on this subject… :-)

    Seriously, great article. Enjoyed it immensely.

  6. Savage1701 says:

    And that holding back goes for you as well, Mr. R. Especially for you. :-)

  7. Bokolis says:

    To keep it as anonymous as possible, from behind enemy lines, I can say that the recovery percentage* is much less than “much less than half.” There are loads of reasons for this that aren’t necessarily the brokerage’s problem, but the biggest factors are that the brokerage is in far better position to defend itself than the claimants are to “attack” and the claimant’s ceiling is set at being made whole.

    * – exempting ARS claims, a a unique situation…firms have taken a hit, but no where near the hammering the customers have taken.

    The match-up is so lopsided that, even with the states implementing rules to help the claimants, it isn’t getting any better.

  8. Petey Wheatstraw says:

    “. . . If you have a dispute with Wall Street, the odds are strongly that YOU ARE FUCKED.”

    It is abundantly clear that the vague entity known as “Wall St.” has captured our government (all three branches, and along with them, the Treasury). That fact all but guarantees that you/I/we are fucked — regardless of whether we are an investor with a beef, or not.

    We the People have capitulated. Our former Constitutional Republic has succumbed to rule by Fascists. It seems the vast majority would go along to get along.

  9. JimRino says:

    Shock, no legal recourse to Wall Street Fraud.

  10. JimmyDean says:

    Totally agree. Every B/D I have affiliated with have done some seriously nefarious shit – to me and to its clients – and the way the system is set up I am certain we have no recourse. Juries would have put them all out of business – and we’re talking big and small name firms alike.

    This type of a system is creeping into every corporate work environment we have. “Hot Coffee” is a great documentary that pretty succinctly describes this BS state of affairs.

  11. [...] The Kangaroo Court of Wall Street | The Big Picture [...]

  12. jd351 says:

    I have a bad feeling none of this is going to end well. It’s a matter of time before people start taking matters into their own hands. The whole system is corrupt, top to bottom. Keep the powder dry, you are going to need it.

    4) The Court system itself refuses to recognize how utterly corrupt it is for an arbitration system to be owned by the defendants; Lastly, the US Supreme Court itself — a biased, corrupt, ideologically driven embarrassment that has said corporations have the same rights as people — has tolerated this gutter system for years.

    This really sums up the whole ballgame. I know many people who idealogically driven who are getting screwed over and don’t even know it.

  13. MinnItMan says:

    Greenspan was ridiculed for saying that financial fraud was essentially impossible, but I think there was actually a lot of truth to it. You have to at least be open to the idea that consumer/investor protection doesn’t do a very good job protecting intended beneficiaries, and maybe cannot, given the asymmetry of diffuse consumer/investors’ interests and the very concentrated interests of the B/Ds.

    I certainly get the desire to make the market “safe” but to what extent does the regulatory alternative to Caveat Emptor lead to a false sense of security? Look at every regulated industry and tell me that you don’t see everywhere complicated, convoluted yet “compliant” ways to conceal risk in plain sight. In other words, do pharmaceutical side-effect warnings actually do anything but provide a CYA for the drug-makers?

    I first learned about arbitration clauses when I bought my first house. Without solid information about the cost of seeking a remedy – if it comes to that – a party is effectively agreeing to a “deductible” for any loss. The undisclosed problem – clearly known by the seller – cost about the same as arbitration costs that had to be paid up front. But, that’s only slightly less true for ordinary legal remedies, as well. How many people realize how egregiously the legal system is stacked in favor of the very, very few (the extremely rich and insurers of some sort, basically) who can afford it?

    All I’m saying is the “pro-regulation” versus lightly regulated “free market” debate is woefully superficial. Regulation that gives an impractical and cost-ineffective remedy = a false sense of security. How is that controversial?

  14. Mike in Nola says:

    I got stuck representing a friend in one of these. His broker told him he couldn’t invest IRA money in a deal where there was no prohibition. The problem for the broker was that it was a direct investment in a business so he couldn’t get a cut of it through commissions like he did with funds.

    When you got to arbitration you get to choose from a list of arbitrators. You can see their arbitration history. As the article says, there are a few victories for clients, but much much less than half. It’s been ten years, but my recollection was that the people we had to choose from ruled for plaintiffs a lot less than 10%. Maybe it has something to do with the fact that they almost all had worked in the brokerage industry.

    I hope kcs or, better yet one of his family, has to bring one of those frivolous suits so it can be decided by some “experts.” The only frivolous suits I saw in the courtroom were those representing big business.

  15. constantnormal says:

    Much the same as the AMA’s stance against malpractice suits, standing behind doctors who should have been defrocked and run out of town long ago …

    Industry self-regulation always is, always was, and always will be a sham.

  16. Stan Klein says:

    The primary model of many businesses has gone from creating and providing better products and services to screwing customers. This especially applies to Wall Street. If you are in the business of screwing customers, you need to protect yourself if they try to retaliate. This needs to be fixed, along with a lot of other stuff.

  17. kris says:

    It reminds me of communism in Eastern Europe.

  18. FNG says:

    Thanks for bringing this to our attention. I have to admit though I’m becoming numb to the injustices, crimes and heinous behavior of Wallstreet. Depressing I know….I think that’s what they bank on. I don’t know how you manage to handle the burnout as you are in the “shit” daily. Maybe you could head down to the Islands again….you know unplug for a week. Tell us how blue the water is, how cold the beer is, and how sweet the bikinis are…

  19. mpgwinn says:

    I was an arbitrator for the NASD for 25+ years. My experiance was it worked very well. Of the many cases I oversay, 30+, there was always a fair outcome for the plaintiffs. I think alot of the negativity is coming from the legal profession. They see the $s coming out of there pockets and they don’t have a jury to manipulate which, in most cases, don’t understand the securities business.

  20. ERISANation says:

    Barry is right, but what’s the alternative? Go to court? The legal system has nothing to do with justice or fairness, just the rearranging of econmic power. Those able to pay the fees, experts etc eithe win outright or exhaust the aggreived. So, don’t make an investment unless you are prepared to be f-d.

  21. [...] Don’t expect a fair shake from the arbitration process.  (Big Picture) [...]

  22. reedsch says:

    You have as many legal rights as you can afford (time, money, or both). That said, any time I had a chance to tell my story to the judge I felt a sense of completion, even when I lost. This is what cracks me up about the mania to privatize, on the presumption that the free market is the only proper arena to mediate socio-economics needs. Q: When an agreement between private parties breaks down, as inevitably some will, what’s your recourse? A: A court of law i.e. the PUBLIC duh! Or we could keep it in the private sphere, the good old-fashioned way e.g. baseball bats & missing body parts.

  23. NoKidding says:

    Justice is an illusion. Make your own.

  24. ToNYC says:

    I remember the first time I saw the bumper sticker during the brief moment of free love revolution, “Ass, Grass, or Cash Nobody Rides for Free”. For two weeks in the summer of 1967, everything was perfect.
    Expecting anything but a caboose ride is all that is left for the public on the train they weren’t watching being built.

  25. bear_in_mind says:

    “Caveat emptor”? Bwah, hah, hah!!!!! Barry, can you spare a few dozen Ninjas?

    Robert Reich coined the term “symbolic analyst” to describe corporate roles designed to foster development of increasingly arcane rules and language, almost exclusively to the benefit of the organization, not citizens. It’s this complexity and opaqueness that has seemingly obliterated decades of contract law precedent.

    Folks, most of what’s referenced here about FINRA is FRAUD, and the failure to prosecute it, due to contractual legalese that most people don’t understand, much less read, when they enlist the services of a broker / brokerage firm / advisor. So right from the start, it’s not even close to a level playing-field. The asymmetry of information places the average citizen squarely behind the eight-ball… right where Wall Street wants us.

    I know really bright folks who I sadly helped to discover (to their great dismay) they’d been sold back-end loaded funds in late-2007 with 25 percent penalty/recapture fees for early (<5 years) withdrawal. Did the broker / analyst verbally disclose this little nugget? Nope. Did they underline or highlight it in the contract? Nope.

    But what really gets my dander up is discovering how many FINRA-registered brokers/analysts are making a living off of "churning" the assets of the elderly; or worse yet, selling them annuities which mature in 30-40 years. This may be the most under-reported, widespread form of institutionalized financial abuse in America.

    To give you an example, when you discover an 85 year-old widow with $500,000 in a brokerage account with 90 percent asset allocation in actively-managed tech stocks, you'd think that would be some sort of a clear violation of ethics or practice – right? Not according to FINRA. It's all 'caveat emptor', baby. What if the widow has been led to believe this money was sitting in a "savings" account? Same thing… good luck adjudicating that.

    The lesson here: the wolf is now ALWAYS at the door. With folks living longer, cognitive attrition increasingly makes them prime targets of deceptive (and/or fraudulent) practices. You need to apply an ounce of prevention with aging parents, grand-parents and other relatives to keep them from becoming victims of this as well.

    And don't forget your own estate plan… for you, too, will likely not be as young, or sharp, as you are today.

  26. ToNYC says:

    Wall Street 2.o
    The new investment paradigm is when you they have run out out of” Eat the young”, the next recommended retirement theme is to “Eat the old”. It’s weak soup to be sure, but that’s what’s on the 70″.
    Ask the Fonz for information on reverse mortgages….

    “The lesson here: the wolf is now ALWAYS at the door. With folks living longer, cognitive attrition increasingly makes them prime targets of deceptive (and/or fraudulent) practices. “

  27. TR says:

    This clause works in theory. Installing new windows? You probably signed too. ‘Public Citizen’ is working to fix this, has been working on it for years. That doesn’t bode well for a fix. We should turn the tables and have each community the offense is comitted in run the arbitration!

  28. Francois says:

    Who will want to invest in the USA if the constant theft and heist keeps on going like that?

  29. Francois says:

    It never fails: Here’s a post, clear, fact-based, and irrefutable.

    What do we get as a first comment?

    “In today’s society, every time someone books a loss they are looking to blame someone..”But your analyst upgraded FFIV at 117 and I bought it and it is now under 100.” There needs to be some roadblock to frivolous lawsuits, and a pure non-industry group is ill-suited for the role.”

    Unreal!! Blame the crime on the victim, while denying any of the charges Barry put forth.

    Apart for fully exercising the “Sharon Angle option”, how is it possible to get rid of the Wall Street legions of shills, trolls and detestable cretins?

  30. Francois says:

    “the US Supreme Court itself — a biased, corrupt, ideologically driven embarrassment that has said corporations have the same rights as people ”

    Hey Barry,
    Here a refreshing spanking of the SCOTUS position by none other than Justice James C. Nelson of the Montana Supreme Court, which recently refused to recognize the validity of Citizens United for Montana.

    Corporations are not persons. Human beings are persons, and it is an affront to the inviolable dignity of our species that courts have created a legal fiction which forces people—human beings—to share fundamental, natural rights with soulless creatures of government.

    Since the ayatollahs on the SCOTUS bench have a lot of problems understanding English when their political prejudices are challenged, Justice Nelson goes all in:

    “while corporations and human beings share many of the same rights under the law, they clearly are not bound equally to the same codes of good conduct, decency, and morality, and they are not held equally accountable for their sins. Indeed, it is truly ironic that the death penalty and hell are reserved only to natural persons.”

    To quote Voltaire “Et Vlan!”

    For the rest of us, Justice Nelson make even clearer that he and his colleagues understand very well the sorry state of political corruption by corporations in the USA circa 2012:

    the notion that corporations are disadvantaged in the political realm is unbelievable. Indeed, it has astounded most Americans. The truth is that corporations wield enormous power in Congress and in state legislatures. It is hard to tell where government ends and corporate America begins: the transition is seamless and overlapping.

    Ever noticed how thunderous was the silence in the lamestream media (Slate being the exception) about this rather extraordinary writing? One is tempted to wonder what is the difference between the US MSM and Zimbabwe State TV.

  31. DeDude says:

    Unless the free market provides equal services without the need to sign away your rights, then these binding arbitration clauses are basically the same as corporations making their own law (in this case making a law saying that they are not bound by the laws of the country). The fact that they have established their own justice system outside of the US justice system does not make it any better. Corporations love this thing, they can make their own laws and not suffer the consequences, because people have no realistic alternatives. Now if we had a government “for the people” then all binding arbitration would be banned. What’s next, do we allow bank robbers to declare armed robbery legal (if unarmed robbery can be declared legal by the Wall street criminals….).