You've been named in an arbitration. Do you need your own attorney?
Q: I was recently named in an arbitration by a former client. People have told me to get a lawyer but that’s expensive. My employer has an attorney whom I’ve spoken with. He said he’d represent me along with my employer. He seems to know what he’s doing and says he’s handled hundreds of arbitrations. It won’t cost me anything to let him represent me, so I’m tempted to do so. What are your thoughts?
A: The question of whether registered reps should hire their own lawyer to defend them is always challenging. First, consider the possible conflict of interest. It may seem your interests are aligned with your firm’s interests, and ethics rules require lawyers to treat you and your employer equally. Still, the attorney’s loyalty is almost certainly going to lie with the brokerage firm. They’re the ones paying and they’re the ones who will give more business in the future.
Also, an obvious conflict of interest may arise. Maybe you really did make a mistake. In that case, it may be in your employer’s best interest to throw you under the bus. The attorney may tell you at that point that you need to retain your own counsel. But, in the meantime, the attorney may have gotten everything he or she needs to shift the blame to you.
A more common scenario is that the brokerage firm decides that it’s in their best interest to settle the case. While you may feel like you want to fight to the bitter end to clear your name, it’s likely that your former client wants to settle as well. Assuming the client is satisfied with the brokerage firm’s offer, they’ll settle the case and dismiss the action; leaving you standing there with a mark on your CRD report and no way to have your say in front of the arbitrators. Even with your own attorney, however, the client and the brokerage firm can settle without your input and dismiss the case.
Not knowing a FINRA rule can’t save an advisor from statutory disqualification.February 26
Be careful when giving gifts over $100 in value.November 27
So, should you spend the money to hire your own attorney? My answer would be a qualified “yes.” I do think it’s worth the cost to have someone independent from your brokerage firm looking out for your interests. However, you should discuss with them the extent of the services they’ll provide. In other words, they should, for the most part, be able to ride the coattails of your employer’s attorney to try and minimize your costs.
Discuss with your employer’s attorney and your own whether they will coordinate on requests for documents and whether your employer’s attorney will provide your lawyer with copies of everything he or she gets from the other side. By cooperating in this way, your attorney won’t have to spend a lot of time duplicating the efforts of your employer’s counsel and you can minimize costs. Whoever you hire, though, make sure they’re experienced in the arbitration process.