The Financial Industry Regulatory Authority (“FINRA”) will increase its review of arbitrators’ backgrounds after one of its arbitrators continued to serve after he was indicted for practicing law without a license.
Previously, FINRA only checked the backgrounds of potential applicants when they applied for inclusion on FINRA’s arbitrator roster. FINRA relied on arbitrators to self-report any new information. Now, FINRA plans to conduct annual background checks on each of its roughly 6,500 arbitrators and review them again when an arbitrator is appointed to serve on a panel.
The change came about because of a situation involving public arbitrator Demetrio S. Timban, Jr. In October 2011, Timban was indicted in New Jersey for practicing law without a license. Timban failed to inform FINRA of his legal troubles until February 29, 2012. Subsequently, FINRA also learned that Timban had been reprimanded for writing $18,000 in bad checks in Michigan. All the while, Timban was serving on the panel of a $1.4 million case against Goldman Sachs. At the time, FINRA and the parties in that case were in-the-dark about Timban’s legal troubles.
Goldman Sachs ultimately won the arbitration. The investment partnership that lost is now seeking to vacate that award based on its contentions that Timban’s legal problems had an impact on the outcome of the arbitration. It contends that if Timban’s indictment had been disclosed and Timban replaced with a different arbitrator, the case would have ended differently.