The Financial Industry Regulatory Authority on Monday confirmed
that it removed the arbitrator, James H. Frank, of Santa Barbara,
California, from its roster of arbitrators last year.
Frank said he was a lawyer and a member of the bar in several
states, when in fact, he was not, a FINRA spokeswoman said.
The dismissed arbitrator said via email that he was unaware of
FINRA's reasons for removing him, other than that it received a
complaint about him from a lawyer involved in a case he had
arbitrated. The allegations that he lied about being an attorney and
bar member are "inaccurate at best," he wrote.
Frank claims that he was a "lawyer" — putting the word in quotes — and that the California bar must have lost his records.
The case comes to light as advocates for consumers and investors are
calling for an end to mandatory arbitration. FINRA, Wall Street's
industry-funded watchdog, runs the arbitration forum where
brokerages and investors must resolve their disputes.
FINRA has been taking steps to improve perceptions of fairness to
investors in its arbitration system. It also recently beefed up
measures to police its arbitrators. Nonetheless, the latest
revelation is likely to be more ammunition for mandatory arbitration
It is unclear whether FINRA is required to disclose the alleged
misrepresentation to parties involved in the dozens of cases that
Frank heard, or whether it has made those disclosures. FINRA
declined to comment on that issue.
The revelation also raises questions about whether the parties could
attempt to overturn some of those decisions in court, lawyers said.
An arbitrator who misrepresents himself as being a lawyer is an
"obvious serious concern," said Terry Weiss, a lawyer with Greenberg
Traurig, LLP in Atlanta, who typically represents brokerages. "That
sort of misconduct could be a basis to vacate the final arbitration
award if it was brought in a timely manner."
But timeliness could be a problem. Parties who want to try to
overturn arbitration awards in federal court must typically make the
request within 90 days of receiving the arbitration order. It is
unclear whether an arbitrator's fraudulent misrepresentations could
give petitioners' leeway to take action under federal or state laws.
The San Francisco Daily Journal reported Frank's dismissal on
Friday. Reuters has since learned that Frank served on securities
arbitration panels in 38 cases between 1998 and 2011, according to a
disclosure report he filed with FINRA. He was also involved in seven
cases at the time of his dismissal. Many of them involved well-known
brokerages, including Citigroup Global Markets Inc., a unit of
Citigroup, Wells Fargo Advisors, LLC, a unit of Wells Fargo Corp.,
and Bank of America's Merrill Lynch, according to the report.
FINRA reported Frank's alleged misrepresentations to the Los Angeles
County District Attorney last year, a spokeswoman said.
It is the second serious allegation involving an arbitrator's
background to surface in less than a year. FINRA beefed up measures
last year to check out arbitrators' backgrounds after it came to
light that an arbitrator who heard a case involving Goldman Sachs
had been indicted.
[to top of second column]
NOT LICENSED TO PRACTICE
Frank's situation first came to light in August, 2013, during a
hearing in a case against a brokerage involving a variable life
insurance policy sold to a 72-year-old woman, according to Benjamin
Blakeman, her Los Angeles-based lawyer.
Blakeman looked into Frank's background after the hearing. A private
investigator he hired concluded that only one person named James
Frank was licensed to practice law in California, but he was not the
same person as the FINRA arbitrator, according to the investigator's
FINRA ultimately removed Frank from its roster and appointed another
arbitrator to make a decision by reviewing tapes of the proceedings,
Blakeman said. The investor lost the case.
Frank admitted to Reuters that he was never licensed in New York or
Florida, although he indicated to FINRA that he was. Asked why he
lied about the Florida license, Frank said: "It's a damn good
question and one that I'm having trouble with."
He also did not graduate from Los Angeles-based Southwestern Law
School, as his FINRA report shows, but instead, "took a bar
refresher course there," he said. There was, however, another James
H. Frank who did graduate from Southwestern Law School in 1975.
"There is no question he is using my credentials. This is not
accidental," said James Hamilton Frank of Santa Monica, who
graduated from Southwestern Law School in 1975 and has never worked
as an arbitrator. He is licensed to practice law, but is now
inactive, according to a California bar database.
Frank learned of the situation from Blakeman, the lawyer. He has not
filed criminal charges against his alleged impersonator, but told
the state bar association and the California attorney general's
office about the matter, he said.
Frank, the former arbitrator, said he was "taken back" by the
allegation that he had appropriated the other Frank's background as
(Additional reporting by Brian Grow and Todd Wolfe;
editing by Linda
Stern and Dan Grebler)
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