Small Class Securities Arbitration

Most new retail investors have account balances of less than $25,000. Members of traditionally underrepresented groups typically have even smaller investment accounts. If a stockbroker’s misconduct results in an investment loss, small retail investors may move from making ends meet to needing social services in retirement. Even if the loss does not make them destitute, it will impact the quality of their retirement. Given the smaller size of their claim, will they be able to find an attorney to represent them? If they cannot find an attorney and decide to proceed pro se, how will they fare? This Article empirically assesses the experiences of investors with smaller claims in forced securities arbitration. Prior work generally treats all securities arbitration cases as the same no matter the damages sought. This Article takes a different approach, analyzing awards by the size of claim and providing a descriptive picture of small retail investors’ experiences. In addition, it empirically demonstrates two important and potentially related facts about small securities arbitration claims. First, claim size is associated with whether investors are represented by counsel. Second, representation by counsel is associated with recovery. Though the available data do not make it possible to explain why smaller investors are less likely to be represented and are less likely to prevail when they proceed pro se, the study’s findings underscore the need to evaluate securities arbitration differently – with a focus on claim size. The Article contributes to regulatory and legislative debates by providing empirical evidence concerning access to counsel on claims the size of the average American investment account. It also proposes interventions to better understand small claims in an effort to better protect Main Street investors.