FINRA Considers Establishing Fund for Unpaid FINRA Arbitration Awards

According to published reports that have been confirmed by a member of the Board of Governors of the Financial Industry Regulatory Authority (FINRA), FINRA is undertaking closed-doors discussions focused on establishing a relief fund that would be used to pay otherwise unpaid FINRA arbitration awards.  Such a fund would endeavor to partially solve the problem of investors who obtain arbitration awards against FINRA member firms and brokers, only to find it impossible to collect on those victories.  Statistics show that in the most recent year for which data is available, a total of $62 million in awards — approximately one-third of all awards rendered by FINRA arbitration panels — went unpaid.  Typically, arbitration awards go unpaid after brokerages and financial advisors declare bankruptcy or are otherwise insolvent, thus rendering hollow the awards entered against them in favor of aggrieved claimants.

Under one plan that has been proposed, FINRA members would pay dues annually into a designated pool (approximately $100 per broker) to help compensate claimants who hold victorious, but uncollectible, arbitration awards.  Such a pool would be created and maintained based on the average sum of unpaid claims over the previous five years.  All of the money in the fund would be paid out annually.

If FINRA were to establish such a recovery fund, many claimants for whom compensation is currently unattainable would find a viable source of reparation from bankrupt firms and brokers.  In addition, the existence of such a fund is expected to bolster investors’ confidence in the arbitration process, as it would prevent the substandard acts of certain FINRA members from going unchecked and would prevent the arbitration process from being a financially fruitless effort for those investors harmed by judgment-proof firms and brokers.

In a recent action, Silver Law Group successfully represented an aggrieved investor in a matter against a shuttered brokerage firm and its financially bankrupt founder.  While the FINRA arbitration panel awarded our client $1,250,000 (including $750,000 in punitive damages), no source of monetary recovery has yet been available to compensate our client.  With the existence of a FINRA relief fund, our client — and each similarly-situated claimant — would at least be able to obtain a partial recovery of his losses.  While we support any initiative which helps victims get compensated, our attorneys frequently work with victims to pursue claims against control persons, insurance carriers and, potentially, additional third parties.

Silver Law Group (www.silverlaw.com) is a nationally-recognized securities law firm headquartered in South Florida, with satellite offices in New York and Washington, DC, representing investors worldwide with their claims for losses due to financial misconduct and investment firm negligence in securities litigation and arbitration matters.  The firm has successfully recovered multi-million dollar awards for its clients through FINRA arbitration, NFA arbitration, and the courts.  To contact Scott L. Silver to discuss your legal matter, call toll-free (800) 975-4345 or e-mail him at SSilver@silverlaw.com.