Professor Nicole Iannarone delivered the keynote remarks at the recent U.S. Securities and Exchange Commission’s 2024 Investor Advocacy Clinic Summit hosted by the SEC’s Office of the Ombuds and co-hosted by the SEC’s Office of Investor Education and Advocacy (OIEA) and Office of Minority and Women Inclusion (OMWI).
Iannarone focuses her scholarship on Main Street Investors who are harmed by stockbroker misconduct. Before joining Drexel Kline Law, Iannarone directed a law school clinic that offered free legal services to retail investors affected by stockbroker misconduct. While there are currently six states where investors have access to this free legal help, Iannarone stressed the need for more during her keynote.
“The problem isn’t that there are too few lawyers in this country; the problem is that many lawyers cater to wealthy individuals and big corporations,” said Iannarone whose research focuses on consumer disputes with financial professionals. “Regular people with civil legal problems don’t have nearly enough lawyers to help them.”
She highlighted the disadvantages faced by smaller investors in arbitration, where arbitrators, typically non-lawyers, lack training in the specific law and, unlike judges in most civil trial courts, are prohibited from conducting legal research. This leaves smaller investors at a disadvantage against well-funded firms because firms almost always have lawyers. She shared two case studies that showcased the vastly different outcomes of investors with representation compared to those without having representation when facing an identical issue.
During the pandemic, many smaller investors—often younger and more diverse individuals with assets under $100,000—entered the securities markets. Investor Justice matters, Iannarone argued, because most U.S. households are particularly vulnerable to investment fraud, especially given that nearly half lack enough savings to cover three months of living expenses. The inability to recoup losses may exacerbate an already wide wealth gap. In addition, the impact extends beyond monetary damage and affects physical and emotional health as well.
Iannarone described her recent research into forced securities arbitration where she found that less than a quarter of investors with small claims who represented themselves prevailed, compared to 40 percent of investors who had an attorney. Investors represented by law school clinics achieved the highest recovery rate, prevailing in 56 percent of small claims cases decided by an arbitrator from 2015 to 2019.
Iannarone emphasized the benefits of legal clinics, not only for investors but also for students (valuable experience), schools (community engagement) and the industry (accountability). She concluded by expressing appreciation for the SEC's focus on this issue and emphasized the need for better access to justice for Main Street investors.
The summit provided a platform for law students and professors to engage with SEC staff and invited guests, including schools without current investor advocacy clinics. It aimed to share best practices for providing free legal services to underrepresented investors. The event, held at SEC Headquarters in Washington, D.C., was livestreamed on the SEC's website on Friday, March 1, 2024.