Unpaid Arbitration Claims: Will FINRA Pay Investors?

The Financial Industry Regulatory Authority (FINRA) offers an arbitration forum through which defrauded investors can submit arbitration claims against their investment firms and stockbrokers. Since most investors signed an arbitration agreement at the onset of their brokerage relationship, FINRA arbitration tends to be the only dispute resolution option available to investors.

The problem is, it’s not unheard of for a brokerage firm to refrain from paying a FINRA arbitration award. This has left many claimants unable to collect the money they’re owed.

Senate Democrats are currently pushing for a FINRA fund to compensate investors who get stiffed on their favorable arbitration awards.

Unpaid Arbitration Claims and How They Happen

There are many claimants with unpaid FINRA arbitration awards. These situations can occur when a brokerage firm or stockbroker goes bankrupt, and the money doesn’t exist to pay the claimant. Or, the broker might avoid paying the award for other reasons.

In any lawsuit, the notion of whether the defendant has sufficient capital to pay the plaintiff should come into consideration before the plaintiff files a damage complaint. You might have a viable claim for damages, and the wrongdoing might be exceedingly clear, but if you win against a defendant who doesn’t have deep enough pockets to pay you, then all will be for naught.

Claimants can take legal action against a non-paying defendant to enforce a FINRA decision. However, if the money doesn’t exist to pay the claimant, then he or she might be out of luck. For this reason, most lawyers will evaluate the creditworthiness of the defendants in your case before filing an arbitration. Taking this step will prevent most unpaid arbitration claims.

Congress Wants FINRA Claimants to Get Paid

One Senate Banking Committee member, Sen. Elizabeth Warren of D-Massachusetts, wants to pass a law. It will require FINRA to maintain a fund to compensate investors with unpaid arbitration claims. According to Warren’s statistics, approximately $62 million worth of arbitration awards went unpaid in 2013 alone. This represents 25 percent of the money awarded to claimants that year.

Warren says that a lot of the problem relates to small brokerage firms with low capitalizations. These brokers may shut down as a result of a large monetary ruling against them. Then, they never pay the award.

The most Democrat on the Banking Committee, Sen. Sherrod Brown of D-Ohio, also said it’s time for deeper congressional review of FINRA’s work, since “they have fallen short.”

A spokesperson for FINRA has responded that “FINRA continues to be very concerned about awards to investors that go unpaid…We have been taking a careful look at this issue and look forward to working with Congress to try to find a solution.”

The new chairman of the Senate Banking Committee, Sen. Mike Crapo, R-Idaho, also wants to assist investors in getting their FINRA arbitration award money. However, he is unsure as of yet how fellow Republicans will view the matter. He hopes that they can arrive at a bipartisan solution.

Did You Lose Money in Your Investment Accounts?

If you suffered significant declines in your investment accounts, you might have a claim for damages that you can pursue against your stockbroker or brokerage firm. By contacting The Michael Brady Lynch Firm, you can learn about your financial losses to determine the viability of your potential damage claim.


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