FINRA should have put its $50 million fee rebate for member firms toward investors stuck with unpaid arbitration awards, according to the Public Investors Advocate Bar Association.
PIABA President and Gana Weinsten Managing Partner Adam Gana called the issue of unpaid awards for claimants who’d won in FINRA arbitration proceedings a “multimillion-dollar crisis” that harmed investors.
“It’s totally unacceptable that when investors win cases, they don’t see a penny of the money nearly one-third of the time,” Gana said. “It’s clear that this is not the way to promote FINRA’s mission of protecting investors and promoting market integrity.”
In a June note from FINRA CEO Robert Cook, FINRA reported “better-than-expected” 2024 net income due largely to fees from higher trading activity and industry revenue. FINRA opted to offer a fee rebate for active member firms, each receiving an amount based on its 2024 regulatory fees. The b/d self-regulatory organization issued the rebates at the start of July.
However, PIABA (a group of attorneys representing investors) criticized the rebate as a payout that should have gone to investors who were still waiting for award payments.
According to a 2021 PIABA report, unpaid awards have been a longtime industry scourge. A General Accounting Office report found that nearly half of investor claimant awards in 1998 went unpaid, and in 2019, 27% of cases in which claimants were awarded money were as well. In 2020, almost 30% of awards went unpaid, with 24% of the funds awarded that year not going to clients (since PIABA began investigating, unpaid dollars ranged from 12% in 2015 to a high of 34% in 2018).
PIABA proposed that FINRA create a national investor recovery pool, but believed the regulator’s responses fell short. In a 2018 discussion paper, FINRA argued that approaches to helping harmed investors “generally would require SEC rulemaking or federal legislation or present policy issues that should be considered by the SEC or Congress.”
FINRA representatives did not return a request for comment prior to publication.
Gana also criticized FINRA for changes to arbitration qualifications the regulator unveiled in May, saying it made the modifications “in the dead of night—without transparency, notice or stakeholder input.”
According to PIABA, the changes modified arbitrator educational requirements from two years of college-level credit to a four-year degree, as well as changing the employment requirement from “five years of paid business and/or professional experience” to five years of “professional work experience,” with professional work experience defined as employment requiring an advanced degree.
PIABA argued that FINRA didn’t notify investor advocacy groups and maintained that the changes would shrink an “already strained” pool of available arbitrators. They could also drastically limit the diversity of arbitrator panels, potentially excluding small business owners.
“These new standards arbitrarily disqualify people with decades of relevant life and business experience who could offer fair, real-world perspectives to the arbitration process,” Gana said.
#PIABA #Criticizes #FINRAs #50M #Fee #Rebate #Unpaid #Arbitration #Awards