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Filings up 11%, resolutions up 7%; gap increasing


For the year past, NASD Dispute Resolution recorded 7,704 new arbitration filings, 11% greater than the record year in 2001 and 39% greater than the total for 2000. This kind of new case volume raises the possibility that pressure may be placed upon the smooth processing of pending matters and, indeed, there are indications of system stress. For instance, the closed-case tally for 2002, while the second highest on record, still did not top the 6,000 mark; at 5,957, the number of closed matters exceeded 2001’s figure by 7%, but it still left a gap between newly docketed cases and those exiting the pipeline of 1,747. In addition, average turnaround time is up 5% from 2001 to 13.7 months.

Mediation figures are up about 6% for the year and the settlement rate for cases entering mediation stands at an admirable 82%, but the percentage of cases that are being disposed without the necessity of an Award is the lowest it has been since 1998. Only 50% of the closed cases were actually the subject of formal settlements; another 17% were administratively terminated or withdrawn; and the others were determined by arbitrators (237 more than in 2001). This, of course, means that more staff and arbitrator (not to mention party) time needs to be spent resolving the cases that are being closed.

Almost half of the new customer cases involve common stocks, but the big change in “cases served by security involved” occurred with mutual fund products, where 1,249 mutual fund disputes were recorded versus 543 in 2001 and 261 in 2000.

Options-related cases grew in number to 508 cases from 419 in 2001 and corporate bond matters increased from 161 to 253.

The type of controversy most frequently mentioned in claims was breach of fiduciary duty, which may say something about the nature of the usual customer’s grievance, i.e., that it centers on a breach of trust. This kind of claim has steadily increased from 1,655 in 1998 to 4,236 in 2002 and was up 22% in 2002 (compared to the overall growth figure of 11%). The greatest percentage increases in type of controversy occurred in the categories of “unsuitability” (73%) and “omission of facts.” Affirmative “misrepresentations” were up as well, but to a lesser extent (38%). Negligence, unauthorized trading, and churning allegations increased, but less than or equal to the average, margin call complaints were down a bit (-2%) and online trading complaints actually decreased 39% from 155 to 95 claims.

Customer cases that resulted in Awards numbered 1,483, 78% of the 1,906 cases decided by arbitrators in 2002. Customers won 55% of the time and, in dollar terms, recovered $139 million, $116 million in non-punitive amounts awarded and $23 million in punitive awards.



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