State securities regulators have proposed a model law to encourage states to create their own restitution funds for victims of investment malfeasance who have not received their money from the firms or advisors who wronged them.
“The intent of this model legislation is to provide financial assistance to victims of securities law violations who were awarded restitution but have not received full payment,” said Christopher W. Gerold, president of the North American Securities Administrators Association (NASAA), in a press release late Wednesday.
“In many cases, victims of securities fraud are only able to recover pennies on the dollar,” Gerold said. “This model legislation would give state securities regulators the ability to provide greater financial relief to victims, which is particularly important to seniors and other vulnerable adults living on a fixed income.”
Plaintiff attorneys have asked the Financial Industry Regulatory Authority to create a national restitution fund for the large numbers of investors who win in arbitration but are never paid their awards. Finra, which has released a study on the issue, said creating an investor restitution fund would require an act of Congress.
The board of directors of NASAA approved the proposed model for public comment at their recent meeting. The proposal is available here.
In addition to creating a state securities restitution assistance fund, the model law outlines victims’ eligibility requirements and an application process for those seeking restitution and sets payment caps on the amount of restitution awards that a state fund will make.
For example, the model caps restitution assistance awards at the lesser of $25,000 or 25% of the amount of unpaid restitution awarded, or the lesser of $50,000 or 50% if the victim is a vulnerable person, subject to waivers for good cause. State securities regulators, however, can modify the model when they introduce it as legislation or regulation in their own states.
The act draws upon similar legislation in Indiana, Montana, Vermont, Kansas and Maine. Gerold noted that Indiana and Montana enacted similar legislation nearly a decade ago and have reported that their restitution assistance programs are successful.
Indiana, which was the first to establish a fund in 2010, has since the fund’s inception paid approximately $1 million in restitution assistance awards to 102 claimants.
Montana, which established its fund in 2011, has paid $1.6 million to 118 claimants. The average amount of the awards was $10,000 in Indiana and $13,631 in Montana. The average recipient was 64 years old in Indiana, and 82% of recipients were over 60 years old in Montana, NASAA said.