Client wins $433,000 through Finra arbitration claim, but will likely see no payment

The claim against defunct broker-dealer EDI Financial Inc. highlights a growing problem of unpaid arbitration awards

Aug 21, 2017 @ 1:55 pm

By Bruce Kelly

A client of a small broker-dealer that sold her high risk private placements and nontraded real estate investment trusts won a $433,000 arbitration claim last week but, because the broker-dealer is defunct, she will likely see no payment from the award.

The large unpaid arbitration award comes at a time when the Financial Industry Regulatory Authority Inc. board last month advanced proposals that would give it more opportunities to put pressure on financial firms that avoid paying arbitration claims.

The client, Kirsten H. Green, filed the Finra arbitration claim in April 2016 against EDI Financial Inc., a small broker-dealer in Irving, Texas, that closed its doors at the end of last year and then was expelled by Finra in June for not paying $33,000 in fines and/or costs in another Finra matter, according to its BrokerCheck report.

EDI Financial reported $7.8 million in revenues for the fiscal year ending in March 2016, and half of that came from "direct participation program," or private placement, commissions, according to a filing with the Securities and Exchange Commission.

A call to EDI Financial could not be completed because the firm's number is out of service.

Ms. Green alleged unsuitability, failure to supervise, negligence and other assertions in her claim, according to the award, which was issued last Thursday. She asked for damages ranging between $100,000 to $500,000.

"We are pleased that this panel ruled in favor of our clients and awarded damages," said D. Daxton White, Ms. Green's attorney in the matter, in an email to InvestmentNews. "Sadly though, this appears to be yet another example of Finra's growing problem — unpaid arbitration awards by smaller, uninsured broker-dealers."

Ms. Green's claim was the latest in a continued effort by Mr. White to recover money lost by retail investors in high-risk private placements, and non-traded REITs, he said.

"These types of investments are all extremely high-risk and are only appropriate for sophisticated investors," Mr. White said. "In my experience, broker-dealers often highlight the income potential of the investments in their sales pitches which makes them appealing to retired investors. Unfortunately, retired investors are the investors who can least afford the investments' risks."

The issue of millions of dollars of unpaid arbitration awards for years has been an embarrassment for the securities industry and Finra, which oversees investor arbitration claims through its Dispute Resolution forum.

Seventy-five Finra arbitration awards, or about one-third of the total number handed down in 2013, were unpaid, according to a report released in 2016 by the Public Investors Arbitration Bar Association. That translated into $62 million of award money, or about 25% of the total owed to investors for damages in that year, the report said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

What makes now an ideal time to talk about philanthropy?

With the end of the year approaching, advisers need to be thinking about charitable giving. Schwab's Kim Laughton and JMG's Melissa Walsh discuss some new opportunities to consider.

Latest news & opinion

Raymond James executives call on industry to keep broker protocol

Also ask firms to pay for the administration of the protocol to 'ensure its longevity and relevance.'

Senate committee approves tax plan but full passage not assured

Several Republican senators expressed reservations about the bill, and the GOP cannot afford too many defections.

House passes tax bill, focus turns to Senate

Tax reform legislation expected to have more of a challenge in upper chamber.

SEC enforcement of advisers drops in Trump era

The agency pursued 82 cases against advisers and firms in fiscal year 2017, down from 98 the previous year.

PIABA accuses Finra of conflicts of interest

Public Investors Arbitration Bar Association report slams self-regulator over its picks for board of governors.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print