A moderate Republican has signed on to Sen. Elizabeth Warren’s bill requiring the Financial Industry Regulatory Authority Inc. to create a fund that pays investors’ unpaid investor arbitration awards out of the regulatory fines Finra collects.
Republican Sen. John Kennedy of Louisiana has signed on as a cosponsor of the legislation.
“This bill aims to compensate Americans who have been cheated out of hundreds of millions of dollars,” Sen. Kennedy said.
“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,” Sen Kennedy said.
While passage of the bill is still an uphill climb, bipartisan support increases the chances of passage in this Congress, said Andrew Stoltmann, a Chicago securities attorney and president of the Public Investors Arbitration Bar Association (PIABA).
“This bill is gaining momentum,” said Stoltmann. ”It’s a bipartisan issue now that won’t cost tax payers a dime.”
Investors who work with a broker are required to sign an arbitration clause which limits their legal action against brokers who commit fraud or any number of illegal violations to arbitration. Unfortunately, about a third of investors who win their claims against brokers and firms are stiffed.
To make these defrauded investors whole, Sen. Warren’s bill would require Finra to establish “a relief fund to provide investors with the full value of unpaid arbitration awards issued against brokerage firms or brokers regulated by the Authority.”
The legislation would also require Finra to ensure there are sufficient reserves in the relief fund to provide each investor that submits a valid claim with the entire amount owed. “The relief fund shall be funded first from penalties paid by brokers and then from sources determined by Finra,” the bill stated.
The number of unpaid Finra arbitration awards hit the $250 million mark in 2017, according to a PIABA report, which also found that unpaid arbitrations had risen to 38 percent in 2017, up from 28 percent in 2016. The PIABA report: Unpaid Arbitration Awards: The Case for An Investor Recovery Pool, is available here: https://piaba.org/piaba-newsroom/unpaid-awards.