March 06, 2018

Warren Introduces Legislation to Compensate Investors Cheated by Brokers and Dealers

Unpaid Arbitration Awards Have Cost Investors $100 Million

Bill Text | One-Pager

Washington, DC - United States Senator Elizabeth Warren (D-Mass.) today introduced the Compensation for Cheated Investors Act which would direct the Financial Industry Regulatory Authority (FINRA) to use its existing authority to compensate investors for unpaid arbitration awards against FINRA members.

Investors don't win very often in the arbitration process - and 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.

"FINRA has the authority to make sure defrauded investors don't get stiffed - and this bill will make sure it uses it," said Senator Warren. "Unpaid arbitration awards have cost ordinary investors hundreds of millions of dollars over the years. FINRA is supposed to be looking out for them, not the brokers and dealers who cheat them."

FINRA - and its predecessor self-regulatory organizations - have let this problem continue 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. 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 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.