May 16, 2018

Kennedy Joins Warren on Legislation to Compensate Investors Cheated by Brokers and Dealers

Bill Text | One-Pager

Washington, DC - United States Senator John Kennedy (R-La.) today co-sponsored Senator Elizabeth Warren's (D-Mass.) legislation, the Compensation for Cheated Investors Act (S. 2499), which would direct the Financial Industry Regulatory Authority (FINRA) to use its existing authority to compensate investors for unpaid arbitration awards against FINRA members.  According to estimates, unpaid arbitration awards have cost defrauded investors over $100 million. 

Investors don't win very often in the arbitration process. When they do, they often don't get paid. According to a December 2015 report by FINRA's Dispute Resolution Task Force, investors were unable to collect more than $62 million in unpaid arbitration awards in 2013 alone. A study by the Public Investors Arbitration Bar Association determined that one-third of all arbitration awards in 2013 went unpaid and that the $62 million in unpaid awards represented nearly a quarter of the total amount of arbitration awards that year.

"Ordinary investors have lost hundreds of millions of dollars over the years in unpaid arbitration awards," said Senator Warren. "This bipartisan bill would end that by ensuring that FINRA uses its authority to prevent defrauded investors from getting ripped off.  I thank Senator Kennedy for joining me in this effort."

"This bill aims to compensate Americans who have been cheated out of hundreds of millions of dollars," said Senator Kennedy. "These investors have already been swindled out of their money once, and thousands of them still haven't been given their unpaid arbitration.  Our bill aims to fix that.  I am proud to be a part of this effort with Sen. Warren."

In an April blog post supporting the legislation, David R. Burton, the senior fellow in economic policy at the Heritage Foundation, wrote: "The bill would help investors by providing the funds to pay unpaid arbitration awards, and help broker-dealers by eliminating the budgetary incentive for the Financial Industry Regulatory Authority (FINRA) to impose fines on broker-dealers."

FINRA - and its predecessor self-regulatory organizations - have let this problem persist for too long. A 2000 report from the non-partisan United States General Accounting Office (GAO) found that 49 percent of investor arbitration awards in 1998 went entirely unpaid by broker-dealers and an additional 12 percent were only partially paid.  Those unpaid awards cost defrauded investors more than $100 million. The GAO recommended that the self-regulatory organizations "develop procedures addressing the problem of unpaid awards caused by failed broker-dealers." But nearly two decades later, FINRA still has not established such procedures.

The Compensation for Cheated Investors Act, which was introduced by Senator Warren in March, would direct FINRA to establish a pool funded by penalties from members that will pay unpaid final arbitration awards and require it to track whether future arbitration awards are paid.