A third of FINRA arbitration awards are unpaid.
Richard W. Berry, FINRA Executive Vice President of Dispute Resolution, recently provided a statement to the SEC Investment Advisory Committee on customer recovery in FINRA arbitration cases. According to Mr. Berry, “about a third” of cases in which FINRA arbitrators award damages to customers result in unpaid awards. Unpaid awards represent only about 2% of the 13,000 customer arbitrations closed between 2012 and 2016. The vast majority of cases are closed by settlement, not by a decision by the arbitrators. However, the fact that a third of arbitration awards go unpaid is significant and disturbing.
Investors should be aware that most broker-dealers do not carry insurance for the types of claims typically brought in FINRA arbitration cases. To make matters worse, the regulatory capital required to conduct business as a FINRA broker-dealer is surprisingly low. The continued existence of a thinly-capitalized firm may be jeopardized if the firm experiences a number of customer claims within a short period of time.
Mr. Berry’s statement indicates that FINRA will consider advocating for rulemaking by the SEC to maintain additional capital.
Until that happens, investors are encouraged to investigate the financial position of a broker-dealer before doing business with that firm. A broker-dealer’s annual financial statements are required to be submitted to the SEC on Form X-17A-5 and are available to the public through the SEC’s Edgar Company Filings database.
Mr. Berry’s entire statement may be accessed here.
The lawyers at Whiteman Law Firm have been representing investors in securities claims for over 30 years. We represent individuals and businesses who have suffered financial losses due to fraudulent investment schemes sold by unscrupulous or inept investment promoters, stockbrokers, investment advisors or insurance salesmen. If you have suffered losses due to the misconduct of an investment professional, you need competent attorney representation to help you recover your losses. Whiteman Law Firm assists investors to recover losses through litigation and arbitration. Our attorneys represent investors in all types of securities disputes. We handle everything from complex federal and state court litigation to individual customer arbitrations. We can review the facts of your case on a confidential, no-cost basis, and advise you on your options for recovering your investment losses.
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