One of the most important aspects of securities arbitration proceedings is choosing your arbitrators. It is more art than science. Securities arbitration attorneys ought to spend a ton of time researching and vetting potential panel members. This includes not only reviewing prior awards but assessing value to said awards.

It is essential that attorneys review all of the arbitrators’ prior awards, not just the ones from the NASD. NYSE and AAA awards are available from the Securities Arbitration Commentator. NYSE awards are available on the NYSE website and on Westlaw.

Attorneys should not just review the awards from securities cases. Employment awards may be important too. For example, whether an arbitrator has awarded punitive damages in an employment case would be important to know.

Pro se cases should be disregarded unless there is big award given to a pro se claimant which is very rare.

Counsel must also study the attorneys involved in each arbitration award. You can’t just look at the awards. For example, there are some claimants’ attorneys who are known for bringing a high volume of weaker cases. A zero award for an attorney like that doesn’t tell me much; but if it’s a zero on a case brought by someone with a strong reputation, that would interest me.

Finally, call attorneys who have appeared before the arbitrators to get their first hand commentary on arbitrators. Awards often don’t tell the whole story on their face. There is nothing more helpful than hearing the war story from a trial attorney.

We are often asked what materials an attorney should bring to a large and complex, customer versus brokerage firm, securities arbitration hearing besides evidentiary documents. Below is a list of five things every practitioner should not be without:

1. Exhibit Binders and Tabs

You’d be surprised how many attorneys come to arbitration proceedings without bringing binders and tabs for the arbitrators to hold exhibits. It’s a mistake. Arbitrators appreciate the organized presentation of exhibits. Bring one for opposing counsel and a witness binder as well.

2. Discovery Binder

There are often discovery disputes during arbitration hearings. Make sure you have a binder with all of the document requests, document responses, motions to compel and their responses, orders by the Panel and indices of what documents have been produced by both sides.

3. Securities Arbitration Desk Reference

Professors Seth Lipner and Joe Long have put together an essential reference book which all attorneys should bring to the hearing. The Securities Arbitration Desk Reference has the arbitration statutes, SRO arbitration and conduct rules, the Blue Sky Laws, the Securities Acts and insightful commentary by two experienced securities arbitration professionals.

4. Federal Rules of Evidence

Along with the Reference by Professors Lipner and Long, attorneys should bring a copy of the Federal Rules of Evidence. One never knows how stringent a panel will follow the rules of evidence in a securities arbitration. It’s good to know you have the FRE with you.

5. Calendar

Unfortunately, large and complex securities arbitration hearings often take longer than the amount of days scheduled. Therefore, always remember to have your calendar with you to potentially schedule more hearing dates. Hopefully, tips one through four will help you avoid needing tip five.

The stock market has been tumbling since announcements by HSBC and other banks that there is great concern about exposure to subprime mortgage defaults. Could this be the beginning of a potential giant mortgage securities fraud investigation? Maybe.

Subprime mortgages are loans given to potential home buyers who are not creditworthy or have almost no cash to put down as collateral. According to some reports, up to 35 percent of all mortgage securities issued in 2006 were of the subprime variety which to us seems very high.

These subprime mortgages are then packaged with investment grade mortgages and sold as securities by banks to investors. The loan originators, banks, attorneys and everyone else who is involved have been reaping huge returns in recent years on mortgage securities. However, owners of pooled mortgage securities only mark the securities to market when a rating agency changes its rating. There are whispers on the Street that institutional investors may be reporting inflated values for their pooled mortgage securities.

The risky mortgage bond market is in a free fall. New Century, a major subprime mortgage lender that does business with HSBC, Morgan Stanley, CitiGroup and Goldman Sachs is on the brink of bankruptcy, has all but been delisted by the NYSE and is being investigated by the SEC.

But where is the mortgage securities fraud you ask? If the underlying subprime mortgages that make up a tranche of a CDO or other mortgage backed security were issued in a fraudulent manner. And the banks and brokerage firms who sold the security to an institution did not do their due diligence on said loans when they were included in the pooled mortgage security. The banks and brokerage firms may be exposed to potential legal claims. We shall see how it all plays out.

Trustees have fiduciary duties to trusts. When stockbroker fraud has potentially been committed in a trust, what should the trustee do? Investigate.

A trustee has the duty to investigate red flags of fraud or wrongdoing by stockbrokers and to pursue any legitimate claims for the trust's benefit. Failure to investigate may make the trustee liable to the trust's beneficiaries.

Trustees should review the brokerage statements and new account documents of the trust's brokerage account immediately. If the trustee does not have the expertise to decipher potential fraud, he should speak to an attorney who represents investors in securities fraud cases. If there's a claim, the trustee should commence an arbitration.

However, note that the brokerage firm may file a counterclaim against the trustee for failing to fulfill his fiduciary duty. We think these are meritless counterclaims because the brokerage firm does not have standing to assert them. Irrespective, the trustee will have to defend it.

Counsel should advise the trustee about the potential conflict of interest which may arise due to the counterclaim and create personal exposure for the trustee if he commences the arbitration on behalf of the trust. But the trustee would likely have greater exposure to liability to the beneficiaries if he doesn't commence a stockbroker fraud claim when a viable one exists.

I received two very similar telephone calls this week from baby boomers who were worried that their elderly parents may have been the victim of stockbroker fraud by major Wall Street brokerage firms. Both of them had just learned of the issue.

Ordinarily, we would analyze the brokerage statements and the facts and decide whether the seniors had viable claims. However, there was a problem. The potential stockbroker fraud activity occurred as early as 1999. The children did not know about the issues because the elderly parents never shared their financial information with their grown children.

Huge mistake. There are various statutes of limitations or eligibility rules which can bar investors from bringing claims against brokerage firms. In these two matters, the seniors may have had potential claims but we decided not to take either case because the facts took place many, many years ago.

How does one protect their senior citizen parents from stock broker fraud? Have consistent, open discussions with your parents regarding their investments. And most importantly, ask that you be copied on the monthly statements for all of their accounts. Even if you don’t have control over the investments, at least you can keep on eye on them. Had either child reviewed statements in the stories I told above, the fraud would have likely been uncovered in a timely manner and the seniors would have been able to redress the wrongdoing appropriately.

We thought huge, brazen insider trading cases went out with Gordon Gekko and Ivan Boesky in the eighties. Apparently not. The SEC charged 14 defendants with securities fraud in one of the boldest insider trading rings in recent years. A total of $15 million was misappropriated.

UBS, Morgan Stanley and a few hedge funds were front and center. Mitchel Guttenberg, an executive director of research at UBS, allegedly provided inside information about UBS research analysts changing opinions on stocks to a hedge fund manager named Erik Franklin. Not only did Franklin trade on the inside information since 2001, his broker buddies at Bear Stearns did too.

Meanwhile, at Morgan Stanley, a lawyer in the compliance department allegedly tipped off her attorney husband and a high school friend about impending mergers. They traded on the inside information and also tipped the same broker buddies at Bear Stearns. The SEC figured out the overlapping schemes because of unusual trading in Adobe, one of the stocks involved in a merger handled by Morgan.

Here are the relevant questions raised by these bold securities fraud schemes: does the actions of broker-dealer employees tipping hedge funds call for the SEC to regulate hedge funds? Or, is the SEC's regulation of the trading activities of counterparties (ie brokerage firms) which do business with hedge funds enough? We'll see what happens when more insider trading cases come to light.

Bear Stearns was ordered to pay at least $125 million by a New York bankruptcy judge for failing to disclose to investors that Manhattan Investment Fund was committing hedge fund fraud and the firm was instead accepting Manhattan’s funds to cover Bear’s margin exposure. This is a huge decision.

For many years, clearing firms and prime brokers have enjoyed significant protection from the courts when one of their clients have committed securities fraud. The firms have always argued: “all we were doing was clearing trades and providing margin.” The firms forgot to add “and minting money.”

Wall Street firms earn up to $10 billion in prime brokerage revenue each year. A big portion of this is from hedge funds. All the while, firms have been primarily shielded from potential liability when a fund blows up due to hedge fund fraud. The Manhattan decision may change that. Now, when a prime broker sees red flags of potential fraud by a hedge fund it does business with, it better start doing some due diligence.

With the U.S. government recently deciding not to regulate hedge funds, it looks like the major battles over who is to blame when hedge funds blow up will take place in courts and arbitration.