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By: Theodore C. Peters
As recently reported, unpaid FINRA arbitration awards is a growing problem. As FINRA has acknowledged, roughly one quarter of FINRA arbitration awards issued in 2016 went unpaid. If lawmakers have their way, FINRA itself may ultimately be stuck with the check, and be required to pay such awards.
On March 6, Sen. Elizabeth Warren, D-Mass, introduced legislation that would require FINRA to compensate investors for unpaid arbitration awards. The Compensation for Cheated Investors Act would direct FINRA to establish a “relief fund” pool that could be used to provide investors with the full value of unpaid arbitration awards against brokerage firms or brokers regulated by FINRA. The fund would derive “first from penalties paid by brokers and then from sources determined by FINRA.” In the event FINRA fails to take steps to establish such a fund, the bill proposed by Sen. Warren would nevertheless require FINRA to compensate investors from its general budget. The bill also provides that FINRA may require investors to subrogate their claims against brokers, and that FINRA may pursue additional remedies against the brokers.
Also of note, FINRA would not be permitted to limit the amount that an investor may receive from the relief fund, nor would FINRA be allowed to prohibit any investor from submitting a claim to the fund. FINRA would also be required to annually disclose, among other things, the total number of arbitration awards issued in favor of investors against brokerage firms or brokers under its watch, the number and amount of unpaid awards, and the names of the brokerage firms/brokers at issue.
If you have questions or would like more information, please contact Ted Peters at firstname.lastname@example.org.