Arbitration Firms Fail To Disclose Conflicts Of Interest In Consumer Disputes

The Donald’s lost 80% of their $60 mil stock portfolio after following the advice of Piper Jaffrawy, which told them to keep their money in Level3 Worldcom stocks well after the tech bubble imploded, the New York Times reports. As of April 18th, 2001, the firm still rated Level 3 a “strong buy,” even though the stock had dropped to $13.06 from $50…

Now they’re suing Piper Jaffray, but doing so through mandatory binding arbitration, per a rider in their brokerage contract, and the hearings have hardly begun before the chicanery and double dealing inherent in consumer disputes resolved by arbitration burst from opportunity to reality onto the proceedings like a hot poison ivy pustule.

Arbitration is like speed-court in that its findings aren’t subject to appeal. Instead of judges and juries, an arbitration committee handles the dealings. Employees of the arbitration firm, usually hired under retainer by the company in cases of consumer disputes, take the place of judge and jury. Under arbitration, arbitration appointees are supposed to disclose any conflicts of interest.

But in the Donald’s case, their personal lawyer found out just four days in advance of the first hearing that the arbitration firm guy that was supposed to represent them, “…represented Piper Jaffray in a 1999 lawsuit, and that in 2002 and 2006, his firm provided legal services to Piper relating to public offerings it helped underwrite.” In the following days, Piper Jaffray’s own legal firm “uncovered” that Mr. Marshall’s firm, “had represented the brokerage firm in 2003 in a case involving three Piper Jaffray brokers.”

Mr. Marshall was removed from the panel, but this guy of good ol boy network shows how high the deck can get stacked against consumers in mandatory binding arbitration dealings and is further proof of why you should write your elected representatives and urge them to support the Arbitration Fairness Act.

When Arbitrators Are Their Own Judges [NYT]


Edit Your Comment

  1. bambino says:

    “Arbitration Don’t Always Disclose Conflicts Of Interest In Consumer Disputes”

    It don’t? Shaw nuff!

  2. Murraythedog says:

    It’s actually “Piper Jaffray” not “Piper Jaffery.”

  3. timmus says:

    The fact that a person with a conflict of interest failed to remove theirself from the case is a convincing damnation of the arbitration system. I’m not crying any tears for someone that still has $12 million, but I agree with the principle at stake here.

  4. JustAGuy2 says:


    Also, it’s Donalds (for multiple members of the Donald family), not Donald’s. If we’re referring to the possession of multiple members of the Donald family (ie the family car) it would be the Donalds’ car.

  5. doctor_cos wants you to remain calm says:

    This is a lot of bullshit to protect the investment firms.
    I know folks who lost 80% of their savings and went to arbitration with an EXCELLENT case. Out of the three fine folks on the arbitration committee, two of them worked for ‘other’ investment firms.

    Guess what happened next.

  6. bohemian says:

    Is there a way to line out those clauses in contracts? I see those frequently in customer agreements for things you sort of have to have, like utilities. There was something like that on a medical form I filled out recently. Can you just line out the binding arbitration part?

  7. rhombopteryx says:


    Go for it! (Seriously – draw lines straight through the crappy parts.) It sounds like a good choice to me. If you are asking whether that has any legal effect, well, ask a lawyer that.

  8. Stan LS says:

    “I’m not crying any tears for someone that still has $12 million”

    What does that have to do with anything???

  9. tylerk4 says:

    Bruce Gatton, et al. v. T-Mobile USA, Inc., 152 Cal.App.4th 571

    For us Californians, anyway.

  10. Trai_Dep says:

    @tylerk4: huh, what?

    Citing legal case #s isn’t helpful to those w/o a Westlaw connection at home. :)

  11. dbeahn says:

    Gosh, I’m shocked – SHOCKED! – that a company that’s being PAID by one side might not be completely impartial. Who’dathought?

  12. tschepsit says:

    Why the hell would someone put their ENTIRE $60 million portfolio in one freaking company?

  13. jmackowi says:


    Someone who clearly does not know what they are doing and pays an advisor for investment advice. And look where it got them.

  14. Leiterfluid says:

    @JustAGuy2: Actually, it’s McDonalds, according to the source article. I think Ben’s still on vacation.

  15. JustAGuy2 says:


    What, you read the source article? Cheater. :)