While Finra’s collection of industry fines fell to $73 million from $176 million in 2016, a 58 percent drop, the self-regulator has enough fine money to pay off every investor with unpaid arbitration awards many times over, PIABA attorneys said.
Even if legislation does not gain momentum this Congress, Finra and the SEC could create a pool to cover investor arbitration awards using rulemaking, Stoltmann said.
Finra discussed the possibility of an investor recovery pool in its February report “Finra Perspectives on Customer Recovery.”
“Another approach would be to create a second brokerage industry fund, separate from SIPC, to cover unpaid customer arbitration awards,” the Finra report said. “This second fund could be established by Congress through legislation, by SEC or Finra rulemaking (where any Finra rules would require SEC approval), or a combination of the foregoing. It could be funded by assessments of brokerage industry participants directly, indirectly through a Finra funding mechanism, or in some other manner … Finra believes that Congress or the SEC should be involved in any decision to create a second brokerage industry fund for unpaid arbitration awards, especially to the extent it would cover claims that Congress has determined should not be covered by SIPC.”
But Finra’s failure to come up with an action plan since acknowledging the problem as the number of unpaid arbitration awards and investors climbs “undercuts Finra’s legitimacy as a self-regulator,” Chicago-based arbitration attorney and PIABA Board Member Adam Gana told Financial Advisor magazine. “It is long overdue for Congress and Finra to address this.”
Gana’s client, two-time Super Bowl great and former Green Bay Packers offensive tackle Bruce Wilkerson, said in an interview that he is forced to continue working as a machinist today after being the victim of a broker’s Ponzi scheme.
Despite winning a Finra arbitration award for $2 million in 2015, Wilkerson hasn’t collected a dime of his money. In fact, his award remains unpaid today because the firm disbanded and moved their clients to another firm, where one broker is working today. The other principal declared bankruptcy to get around the award.
“I lost most of my net worth. My outlook for early retirement is grim. I will most likely be working until my late 60s and perhaps never fully retire,” Wilkerson said. “Americans deserve to have their hard-earned savings returned to them.”