Warren Introduces Legislation to Compensate Investors Cheated by Brokers and Dealers
Unpaid Arbitration Awards Have Cost Investors $100 Million
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.
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