Nowhere to Run, Nowhere to Hide: The Impact of Sarbanes-Oxley on Securities Arbitration

By Pierre-Louis, Lydie Nadia Cabrera | St. John's Law Review, Winter 2007 | Go to article overview

Nowhere to Run, Nowhere to Hide: The Impact of Sarbanes-Oxley on Securities Arbitration


Pierre-Louis, Lydie Nadia Cabrera, St. John's Law Review


Securities arbitration is a "rigged system" that is unfair to investors.

-William F. Galvin, Massachusetts secretary of the Commonwealth1

INTRODUCTION

A. A Hollow Victory

We won. For over two years, we won appeal after appeal in the New York state courts against a former Schwab and Co. independent investment advisor. The arbitration award in favor of our clients was not large by Wall Street standards. It represented our clients' life savings, however, and an opportunity for them to rebuild their lives. Our clients are immigrants from Pakistan with very little education, money, or business savvy. They had no business investing in high risk technology stocks. In fact, they had no idea their investment advisor invested in technology stocks. How could they? They did know what technology stocks were and did not read English very well. Their unscrupulous investment advisor lost their entire $45,000 investment, and he lost it within six months. The National Association of securities Dealers'2 arbitrators had no difficulty finding that the investment advisor committed fraud and awarded our clients a full recovery plus interest and fees. Sometimes the system does work. Within weeks, the investment advisor filed not one but two appeals alleging a laundry list of sundry state and federal illegalities. We fought every allegation. Finally, after two years, the New York Court of Appeals affirmed the arbitration award and dismissed the investment advisor's allegations as unsubstantiated. It was over. The students informed our clients that we won, and they could begin collection proceedings against the investment advisor. Our clients' gratitude was overwhelming, and it inspired the students to continue working for the less fortunate in our society.

Our euphoria was short lived. Unbeknownst to anyone, the unscrupulous investment advisor filed for bankruptcy during the pendency of the Court of Appeals decision. I held in my hand an order from the Eastern District of New York Bankruptcy Court instructing me to cease and desist from any litigation, administrative proceeding, or collection action against the investment advisor and to attend a meeting of all creditors. For a moment, time really did stand still; then I smiled. We would go, and we would fight. All I needed to know was whether the law was on our side.

B. The Rise of the Sarbanes-Oxley Act of 2002

What is lacking in the U.S. is a culture of shame. No C.E.O. in the U.S. is considered a thief if he does something wrong. It is a kind of moral cancer.

-Guido Rossi, former chairman of Telecom Italia3

In 2001, a wave of highly publicized scandals broke at prominent public corporations such as Enron,4 WorldCom, and Tyco. The scandals followed closely on the heels of the now infamous bursting of the technology bubble. The corporate structure of the U.S. economy changed ever since the Enron scandal emerged.5 Thousands of investors and Enron employees lost their savings and pensions because Enron misrepresented its finances.6 Before Enron's stock crashed, the company's top executives pulled out their investments, but its employees were not allowed to move their pension funds from Enron stock to a money-making investment.7 The refusal of many Enron executives to testify about their company's demise, and the existence of conflicts of interest between Enron directors and outside consultants are among the primary reasons Congress adopted the Sarbanes-Oxley Act.8 The Act was an effort to protect against bad governance and reassure investors that it was safe to invest.9

Sarbanes-Oxley is a broad package of federal legislation intended to rein in corporate executives run amok and restore investor confidence.10 Unlike most of the federal initiatives that preceded it, Sarbanes-Oxley established some mandatory rules governing the internal affairs of publicly listed corporations. In particular, Sarbanes-Oxley includes changes to many different areas of the law: (1) accounting and auditing procedures, (2) financial disclosures, (3) corporate tax law, (4) securities law, and (5) bankruptcy law. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Nowhere to Run, Nowhere to Hide: The Impact of Sarbanes-Oxley on Securities Arbitration
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.