[ by Howard Haykin ] Three FINRA arbitrators have been returned to active duty.  Each was crossed off the roster of eligible arbitrators for FINRA Dispute Resolution cases shortly after they issued a 2011 award to a client against Merrill Lynch, according to a letter obtained on Wednesday by Reuters. Controversial Action. FINRA removed the three arbitrators in mid-2011, and kept them off the list until early 2012.  The incident raised questions among lawyers and others about whether a major Wall Street firm was powerful enough to prevent arbitrators who make decisions adverse to the industry from continuing to serve. According to Linda Fienberg, head of FINRA Dispute Resolution, "FINRA simply does not remove arbitrators from the roster based on their (rulings) and never has." It's also likely that this is the first time FINRA has ever reinstated arbitrators.  These comments were made in a letter she wrote Wednesday to a national organization of lawyers who represent investors in securities arbitration cases. FINRA's initial decision to remove the arbitrators ... was made based on "the findings of an experienced senior staff member who had initially reviewed the hearing record," Ms. Fienberg wrote in the letter to Ryan Bakhtriari, president of the Public Investors Arbitration Bar Association, or PIABA. She explained that the 3 arbitrators – Ilene Gormly, Fred Pinckney, and Daniel Kolver – were reinstated following a second review of the arbitrators' dismissal by Fienberg and other senior dispute resolution managers.

• Ilene Gormly is a former compliance executive at a commercial bank.
• Fred Pinckney is an attorney.
• Daniel Kolver is an attorney, and the founder of a small securities firm.

Unanswered Questions. Notwithstanding to decision to reinstate the arbitrators, it remains a mystery as to why the were removed in the first place arbitrators.  A second mystery is process FINRA DR uses for removing arbitrators - whether based on objective guidelines, whether arbitrators are given an opportunity to defend their actions, etc. It still remains unclear as to why the three were removed from its roster of about 6,400 arbitrators. The regulator, however, appears to have followed a multistep process required for reaching that conclusion, that includes several reviews by FINRA's dispute resolution team, according to a PIABA official. Ms. Fienberg also noted in her letter that, "We also have taken steps to ensure that a similar situation does not occur in the future." FINRA reportedly dismisses about 30 arbitrators per year from its roster, for reasons ranging from unprofessional conduct to mental impairment.  But the near-simultaneous dismissal of all three arbitrators who served on the same case was "unprecedented," said Andrew Stoltmann, a Chicago-based lawyer who represents investors. Representing the Arbitrators. "We will continue our investigation," said Jeffrey Wittenberg, a lawyer in Santa Monica, CA, who represents the arbitrators.  "The facts revealed to date reveal serious concerns about FINRA's processes in regards to the arbitrator selection and termination process," he said, adding a lack of transparency is driving those concerns. The Merrill Decision That Got Them Pulled. FINRA removed all 3 arbitrators following their decision against Merrill Lynch in a case filed in 2009 by a Georgia couple, Robert and Joan Postell.  In their complaint, the couple charged that Merrill Lynch failed to adequately monitor their accounts and they initially sought $640,633 in damages, according to a FINRA ruling in May 2011.  Robert Postell died during the course of the proceedings. The panel found Merrill liable, and issued an award of $520K to Joan Postell and her husband's estate.  An attorney for the investors declined to comment on the reinstatement.  In the months that followed, FINRA notified the three arbitrators that it was removing them from its roster. Merrill Lynch, which is trying to overturn the panel's ruling in a court proceeding, also declined to comment on the arbitrators' reinstatement.  The controversy about the arbitrators' dismissal erupted following a July 8 Bloomberg column about their plight. Lawyers for investors are encouraged by FINRA's willingness to reexamine its decision.  "I'm sure it was a tough decision for FINRA," said Ryan K. Bakhtiari, PIABA president. "It's good to see that FINRA went back to the drawing board and presumably reached the right result." For further details, go to:   [Reuters, 7/26/12].