Did Your Brokerage Firm Go Out of Business?

A new study by the Public Investors Advocate Bar Association (PIABA) shows that broker-dealers and their affiliate firms might not honor claimant awards from FINRA arbitration. In 2020 alone, according to PIABA, 30 percent of FINRA awards went unpaid by member brokerages.

In all, there were 64 FINRA-ordered awards to harmed customers in 2020, a pool totaling over $20 million. Of that sum, $5 million, or 30% of the awards, have gone unpaid—or 24 cents of every dollar. This represents a slight increase from 2019, PIABA found, when 27% of FINRA arbitration awards went unpaid.

PIABA has been tracking the issue for years. Previous reports have found that unpaid FINRA awards ranged from “12% of dollars unpaid in 2015 to a high of 34% in 2018, and 22% of awards unpaid in 2015 to a high of 34% in 2017.”

The new report, titled “FINRA Arbitration’s Persistent Unpaid Award Problem,” is highly critical of FINRA’s failure to act on the problem.  And it warns that the issue is growing due to the rise of the investment adviser sector, which opts for “commercial and for-profit arbitration forums for which there is no public reporting and little regulatory accountability.”

Silver Law Group and its attorneys have extensive experience seeking and recovering losses through securities mediation. Our attorneys can help you determine whether securities mediation is an effective way to resolve disputes between investors and brokerage firms and their financial advisors. If an investor suffers losses as a result of any FINRA sales practice violations or any other securities misconduct, he or she may be able recover losses in a FINRA arbitration claim.

“If there was a goal to protect people from suffering devastating injuries, would it be best to install seatbelts before a car accident, or after?” asked a past PIABA president who co-authored the report. “Investors today have no seatbelt against unscrupulous stockbrokers, investment advisors, and firms that handle hundreds of millions of customer dollars without sufficient capital reserves or liability insurance.”

Seniors and retirees who rely on their investment accounts are particularly at risk, PIABA noted, due to the fact that they don’t discover misconduct in their account until after a market correction, leaving them vulnerable during a marked economic slump.

In reporting their findings, PIABA urged that brokerages be held to higher transparency and accountability. Chief among their proposals is the creation of a National Investor Recovery Pool to give investors another avenue to recover unpaid awards. Money for the investor recovery fund, PIABA suggested, could come from fines assessed against member firms; assessments on FINRA members, or fees levied on the investing public.

“FINRA can solve the problem directly by instituting a national investor recovery pool, but it has steadfastly refused to do so unless ordered by the SEC or Congress,” PIABA said in its report. “If FINRA remains resolute in its refusal to institute an investor recovery pool absent an instruction from Congress or the SEC, then PIABA asks Congress to intervene to address the problem and order FINRA to do its job and protect investors. … The SEC could require that, as a condition of including a mandatory arbitration clause in its customer agreements, firms participate in an investor recovery pool.”

The North American Securities Administrators Association (NASAA), the organization that represents state and local securities regulators, has also proposed Model Rules changes to potentially heighten enforcement against broker-dealers and firms who are delinquent on FINRA awards.

Silver Law Group represents investors in securities and investment fraud cases through FINRA arbitration or court. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses. If you have any questions about how your account has been handled, call today to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Our firm has extensive experience collecting FINRA arbitration awards, prevailing on Motions to Vacate FINRA arbitration awards, and using various collection efforts to enforce FINRA awards after they are received.