Finra publishes list of brokers, firms responsible for unpaid arbitration

Group hopes it will make information more transparent and accessible for investors

Dec 4, 2018 @ 5:03 pm

By Ryan W. Neal

It's only three weeks until Christmas, but the Financial Industry Regulatory Authority Inc. is already showing who is on its naughty list.

Finra is publishing the names of every firm and individual responsible for unpaid customer arbitration awards in a single location on its website. The information will continue to appear on BrokerCheck reports, too, but Finra believes the new format will be more transparent and accessible to investors.

The list includes the names of firms and individuals whose Finra registration has been terminated, suspended, canceled or revoked, or who have been expelled from Finra. These firms and people failed to pay a monetary award within 30 days and then did not comply within 21 days after a follow-up notice.

Also included on Finra's list are firms and individuals who did not pay an arbitration award but cited bankruptcy as a defense.

Andrew Stoltmann, the immediate past president of the Public Investors Arbitration Bar Association, called this a good, if incremental, step for Finra to address the problem of unpaid arbitration.

"They say sunlight is the best disinfectant, and to the extent Finra is publicizing the names and the brokerage firms who have stiffed investors, that's certainly a good thing," Mr. Stoltmann said.

(More: SEC tests show investors don't understand disclosure form for brokers, advisers)

In a report released earlier this year, Finra revealed 2% of all customer cases resulted in unpaid awards. In 2016 for example, there were 2,457 arbitration cases involving a customer dispute. Three hundred eighty-nine of these closed by award, and 44 of those went unpaid.

The organization suspended 154 individuals from 2012 through 2016 for not paying.Unpaid arbitration awards from that time period ranged from $14 million in 2016 to $75 million in 2013.

Unpaid arbitration awards from that time period ranged from $14 million in 2016 to $75 million in 2013.

While Finra deserves credit for releasing numbers on the extent of the problem, the group still hasn't advocated for any solutions, Mr. Stoltmann said.

"It's nice that they are discussing it, but that doesn't solve the problem," he added.

Finra is getting more active on this topic because the U.S. Congress is threatening to solve the problem with legislation, Mr. Stoltmann said. Sen. Elizabeth Warren, D-Mass., proposed a bill in July requiring Finra to establish a fund using Finra proceeds to cover unpaid awards.

With the midterm elections swinging the House of Representatives back in favor of Democrats, passing a bill becomes more feasible, Mr. Stoltmann said.

Finra did respond to a request for a comment.


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