InvestmentNews, an influential source of news, analysis, and information concerning the financial advisory community, has published a March 17, 2018 editorial that strongly urges the adoption of an idea for protecting investors who win arbitration awards against brokerage firms but are unable to collect because the firm is uninsured and goes out of business. And, the idea lauded by InvestmentNews, an idea now the subject of proposed legislation sponsored by Senator Elizabeth Warren, was inspired by the landmark work of McCarthy Lebit investor rights attorney Hugh Berkson.
As reported in our March 8, 2018 blog entry, Hugh was President of the Public Investors Arbitration Bar Association (PIABA) when he researched and authored a groundbreaking report demonstrating that damage awards go unpaid in approximately one out of three arbitrations won by investors. Hugh recently co-authored a substantial update to the report, demonstrating that the problem has grown even worse.
FINRA Is Part of the Solution
The idea promoted by Senator Warren, and now championed by InvestmentNews, would require FINRA to use some of the money it collects each year in fines to create a pool that would be available to investors who have not been able to collect arbitration awards. InvestmentNews states in its editorial, in part:
There are several reasons why this is the best possible solution to the problem. First, FINRA can afford it. Hugh Berkson, one of the co-authors of the PIABA report, pointed out that there was $14 million in unpaid arbitration awards in 2016, the same year FINRA collected $178.8 million in fines. Surely, FINRA can divert less than 10% of its fine money toward a pool to satisfy these unpaid awards. If it feels that it can’t, then it should consider imposing an added surcharge on every firm and broker it fines…
The time for studies, reports and discussion is over. FINRA should move on this and move quickly to spare even one more investor the indignity of not receiving an arbitration award to which he is rightfully entitled.
Support from a respected publication like InvestmentNews will add further momentum to adoption of an easy, long overdue fix for the problem of unpaid arbitration awards. We congratulate our friend and partner Hugh Berkson for his stellar work in bringing about badly needed change on behalf of the investor clients we serve.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA. Hugh is rated AV® Preeminent™ by Martindale-Hubbell®.
He obtained a business degree in Finance from the University of Texas at Austin in 1989, and is a 1994 graduate of Case Western Reserve University School of Law, where he was a member of the Order of the Barristers and received both the American Jurisprudence Award, (National Mock Trial) in 1993 and the Jonathan M. Ault Mock Trial Prize for 1993-1994.
