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FINRA Arbitration Awards: What to Do if They Go Unpaid

Many investors utilize the Financial Industry Regulatory Authority (FINRA) arbitration process to resolve disputes against their brokers or brokerage firm. The FINRA arbitration process concludes when the arbitrators issue a decision and hopefully an award. The panel will issue an award within 30 business days from the date the hearing record is closed. Arbitration awards are final and are not subject to review, except in very limited circumstances. While awards must be in writing, FINRA does not require arbitrators to issue opinions or provide explanations for their decision. An arbitration award contains:

  • Names of the parties;
  • Names of the parties’ representatives;
  • Acknowledgment from the arbitrators that they have read the pleadings and other materials provided by the parties;
  • Summary of the issues, including type(s) of any security or product in controversy;
  • Damages and other relief requested;
  • Damages and other relief awarded;
  • Statement of any other issues resolved during the arbitration;
  • Names of the arbitrators;
  • Date of filing the claim;
  • Date of rendering the award;
  • The number and dates of hearing sessions;
  • Location of the hearings; and
  • Signature of the arbitrators.

The award will also contain any costs or forum fees the panel decided to assess against either party. If the parties jointly request an explained decision within 20 days before the date of the first scheduled hearing, the arbitrators issue a fact-based award stating the general reasons for the arbitrators’ decision.

Collecting FINRA Arbitration Awards

If the arbitrator awards the claimant damages, the respondent must pay within 30 days of receiving the written award unless the respondent files a motion to vacate. Unfortunately, financial advisors and stockbrokers don’t always pay their arbitrator awards. Some brokers file for bankruptcy, leaving the investor to compete with other creditors for the money they’re owed.

FINRA Arbitration Award Statistics

Sadly, just because an investor receives an arbitration award does not mean they will ever get paid. FINRA’s arbitration forum does not guarantee payment of awards, so the responsibility of collecting the award falls on the claimant. As the claimant, you can take your arbitration award to court to have a judge convert it into a judgment. Then, you can attempt to collect on the judgment using the judicial process’s collection procedures.

  • Most cases in FINRA arbitration end with a settlement. FINRA indicates around 18% of cases between 2012 and 2016 resulted in an award. Of that 18%, only 2% involved FINRA unpaid arbitration awards. 
  • FINRA also shows the number of unpaid FINRA arbitration awards online. In 2018, FINRA closed 2,326 arbitration cases. Of those, 145 arbitration cases resulted in an award of damages. FINRA indicated 30% of the cases resulting in an award of damages were unpaid. Additionally, FINRA’s statistics show approximately $31 million in total unpaid arbitration awards for 2018.
  • In 2019, FINRA closed 2,407 arbitration cases. Of those, 141 arbitration cases resulted in an award of damages. FINRA indicated 27% of the cases resulting in an award of damages were unpaid and in 2019 recorded approximately $19 million in unpaid arbitration awards.

Penalties for FINRA Unpaid Arbitration Awards

FINRA deals with thousands of arbitrations every year. Do not rely on FINRA to ensure your arbitration award gets paid. If it remains unpaid after 30 days, you should notify FINRA in writing of the unmet deadline. If you wait for FINRA to notice the arbitration award is outstanding, you might end up waiting a long time.

While the customer can enforce their arbitration award through the judicial process, FINRA also utilizes methods to enforce payment of arbitration awards. For example, FINRA levies suspensions against brokerage firms and brokers who do not pay arbitration awards. FINRA highlights most unpaid arbitration awards are against firms or brokers whose FINRA registration was terminated, suspended, canceled, or revoked.

When a brokerage firm or broker fails to pay an arbitration award in a timely manner, FINRA staff notifies the firm or individual in writing that failure to comply within 21 days will result in a suspension. Until the award is paid, FINRA prohibits the member from associating with other FINRA members. However, according to FINRA Rule 9550 Series, FINRA will not suspend a member who can show one of the following circumstances:

  • The FINRA member filed for bankruptcy protection;
  • The FINRA member paid the award in full;
  • The FINRA member entered a fully-executed, written settlement agreement with the claimants, and obligations thereunder are current; or
  • The FINRA member filed a motion to vacate or modify the award, and the motion has not been denied.

According to FINRA’s arbitration award statistics, FINRA suspended 51 members for non-payment of an arbitration award in 2018 and 50 members in 2019.

FINRA provides a complete list of members suspended for non-payment of a customer arbitration award between 2012 and 2019 on its website.

Grounds to Challenge FINRA Arbitration Awards

FINRA’s arbitration process does not include an appeals stage. Thus, parties seeking to appeal an arbitration must petition a district court to vacate or overturn an arbitration award. The district court can do so in very limited circumstances, including when:

  • The award was obtained by corruption, fraud, or undue means;
  • There was evident arbitrator partiality or corruption;
  • The arbitrators were guilty of misconduct in refusing to postpone the hearing, even with sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or any other misbehavior where the rights of any party were prejudiced;
  • The arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made;
  • There was no factual or reasonable basis for the award; or
  • The arbitrators disregarded clearly defined law or legal principles applicable to the case before them.

These situations do not occur very often. In most cases, the arbitration award remains in place.

FINRA’s Response to Unpaid Arbitration Awards

FINRA has considered other ways to help claimants recover arbitration awards and incentivize FINRA members to satisfy them.

One suggestion involves providing investors with more information about FINRA members who have let an arbitration award go unpaid. The FINRA Board proposed amending Form U4 to elicit information from registered representatives who don’t pay arbitration awards, settlements, or judgments. Form U4 alerts the investor of previous failure to pay, therefore helping investors make informed investment decisions.

Another option presented by FINRA involved creating incentives for the timely payment of awards. They could do this by preventing individuals from switching firms or preventing a firm from using asset transfers or similar transactions to prevent payment of arbitration awards while staying in business.

Other approaches to further address the issue of unpaid FINRA arbitration awards would first require intervention by the SEC or federal government. One potential approach to help ensure firms can pay arbitration awards is to raise firms’ net capital requirements when facing arbitration claims. The SEC sets broker-dealer capital requirements, so this proposal would require amendments to or interpretations of the SEC’s net capital rules to initiate the change.

Currently, brokers and broker-dealers can avoid payment of an arbitration award by filing for bankruptcy. To change this, the Bankruptcy Code needs an update stipulating arbitration awards cannot be discharged in bankruptcy. The amendment would not guarantee payment of the arbitration award. However, it would allow a claimant to enforce their judgment without fearing bankruptcy might extinguish their rights. Because the Bankruptcy Code constitutes federal legislation, Congress would need to pass the amendment.

Have Questions About FINRA Arbitration Awards? Kurta Law Can Help

If you suffered investment losses as a result of your broker or financial advisor’s investment recommendations, FINRA offers a dispute resolution process that can help recover those losses. However, getting a FINRA award doesn’t always mean getting paid. You could miss out on your award payment for many reasons, including when the respondent files for bankruptcy. If you have an unpaid FINRA arbitration award, you can have the award converted to a court judgment and enforce it through judicial remedies. If your broker or broker-dealer fails to pay your FINRA arbitration award, you should immediately reach out to a securities attorney. We can help guide you sort through your options. Contact our office today to discuss your FINRA arbitration award.