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Proposed Law Would Set Aside Funds to Pay Investors Who Are Unable to Collect After FINRA Arbitration

April 13, 2018 Blog

For investors who have suffered fraudulent losses, one of the primary means of financial recovery is to pursue arbitration before the Financial Industry Regulatory Authority (FINRA). Arbitration provides a more efficient and more cost-effective alternative to litigation; and, since registered brokers are required to arbitrate most investor claims, initiating FINRA arbitration will often be the best way for investors to recover fraudulent investment losses.

In most cases involving arbitration claims against brokers affiliated with legitimate brokerage firms, investors who file successful arbitration claims will be able to collect the damages awarded. But, in some instances – particularly those involving independent brokers who intentionally defraud their clients – collecting after an arbitration award can be more of a challenge.

Congress, FINRA Considering Options to Help Investors Recover Unpaid Arbitration Awards

To address this issue, Senator Elizabeth Warren has proposed a bill that would require FINRA to set aside funds to compensate investors whose arbitration awards go unpaid. As reported by InvestmentNews, if enacted, the new law would require FINRA to, “draw from the fines it assesses on member firms for violating FINRA rules to establish a pool of money to cover arbitration shortfalls.” According to Senator Warren, “FINRA has the authority to make sure defrauded investors don’t get stiffed — and this bill will make sure it uses it.”

FINRA has been exploring other opportunities to ensure that investors who receive awards in arbitration get paid as well. These include:

  • Expedited suspension of brokers and brokerage firms that do not timely pay arbitration awards
  • Modifying the law to allow for disqualification of brokers and brokerage firms that fail to pay arbitration awards
  • A requirement for brokerage firms to raise or preserve capital to pay arbitration awards
  • A requirement for brokerage firms to carry insurance to cover unpaid arbitration awards
  • Expanding the Securities Investor Protection Corporation (SIPC) protection program to cover FINRA arbitration awards

Should You Consider FINRA Arbitration?

If you believe that losses in your investment portfolio may be the result of broker fraud, it is important that you quickly evaluate your options for pursuing a financial recovery. As noted above, if your broker is registered with FINRA, initiating arbitration is likely to be your best option. While any potential risk of non-payment is certainly a factor to be considered when deciding whether to pursue arbitration, it should not be your sole guiding consideration, and you should make any assumptions about your likelihood of recovery until you have had an experienced investment fraud attorney evaluate your claim.

Learn more about filing for FINRA arbitration:

Speak with a FINRA Arbitration Attorney at Zamansky, LLC

If you would like more information about seeking to recover your investment losses through FINRA arbitration, you can schedule complimentary consultation with one of our experienced investment fraud attorneys. To request an appointment over the phone or at our offices in New York City, call us at (646) 663-5628 or tell us how we can reach you online today.