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When FINRA Arbitration Awards Go Unpaid

Simms Law, P.C. June 14, 2022

As an investor who has been victimized by a financial professional, it is only natural to seek compensation for your losses. Fortunately, the FINRA arbitration process offers aggrieved investors the opportunity to do just that. When an investor signs a contract with a broker-dealer, an arbitration clause is usually included in the contract, and this restricts the ability of the investor to file a claim in civil court against the broker. The process typically proceeds as follows: 

  1. A defrauded investor files a FINRA complaint.

  2. He or she attends an arbitration hearing. 

  3. He or she is awarded money damages by an arbitration panel. 

This is an ideal result for an investor who has been swindled out of his or her money by a financial professional. Unfortunately, however, these financial awards sometimes go unpaid. In fact, it has been estimated that upwards of 25% of all FINRA arbitration awards are never paid by financial professionals. For example, in 2017 alone, FINRA arbitration panels awarded approximately $84 million to investors. And of that amount, roughly $20 million of it remains unpaid. 

Why Do Awards Sometimes Go Unpaid, And What Can Be Done About It?

In most cases, broker-dealers pay investors when required to do so by a FINRA arbitration panel. However, there are also instances in which broker-dealers declare bankruptcy following arbitration. When this happens, an investor who is owed an award is simply added to the list of the broker-dealer’s creditors. This rarely works out well for investors.

What’s The Solution?

FINRA has taken steps to address the issue of unpaid awards, including working with the SEC. And although rules exist that penalize broker-dealers for failing to pay awards, FINRA continues to tackle this issue. For example, FINRA has proposed rules that would prevent broker-dealers from transferring assets to avoid paying arbitration awards. In addition, federal legislation has been introduced that would create a fund to cover unpaid FINRA arbitration awards. Ultimately, however, the best thing an investor who has been financially victimized by a broker-dealer can do is hire an experienced investor representation attorney. 

Fort Lauderdale Investor Representation Attorney

At Simms Law, P.A., one of our primary focuses is the representation of investors—including those investors who believe they’ve been the victims of financial fraud. For the retail investor, securities fraud typically occurs when a broker or financial advisor misrepresents the risks and key characteristics of an investment, causing the investor to purchase an unsuitable security. At Simms Law, we always take our clients’ concerns seriously and are aware of what is at stake when an investor suffers losses due to financial fraud. If you suspect that any suspicious activity has occurred in any of your investment accounts, or if you believe that you have been misled about the nature and risks of any of your investments, please contact us today for a free consultation.