In February 2016, while Hugh Berkson was President of the Public Investors Arbitration Bar Association (PIABA), he researched and authored an extensive, groundbreaking report demonstrating that in approximately one out of three cases in which ripped-off investors win an arbitration award, the damages go unpaid, as does nearly $1 of every $4 awarded. His report not only highlighted the problem, but also offered some suggestions about how to fix it.
Unpaid Arbitration Out of Control
The report generated a lot of national press coverage. Hugh and some other PIABA members met with Senator Elizabeth Warren’s office to discuss the problem of unpaid awards and it definitely got on her radar, to the point where she referred to Hugh’s report in a Congressional hearing. PIABA also just released yesterday a substantial update to the report, co-authored by Hugh and PIABA’s current President, stating in part that unpaid arbitration “is spiraling out of control,” growing to $200 million over the period of 2012-2016. The report also shows that the percentage of cases with unpaid awards has grown by 3%.
Compensation for Cheated Investors Act
Yesterday, Senator Warren introduced legislation that would require the Financial Industry Regulatory Authority (FINRA) to use its authority to compensate investors for unpaid arbitration awards against FINRA members. The Compensation for Cheated Investors Act would direct FINRA to establish a pool funded by penalties from members that will pay unpaid final arbitration awards and require it to track whether future arbitration awards are paid. Sen. Warren noted that, “Unpaid arbitration awards have cost ordinary investors hundreds of millions of dollars over the years. FINRA is supposed to be looking out for them, not the brokers and dealers who cheat them.”
The issue of unpaid awards is near and dear to our hearts. We’re tired of telling investors, “Yes, you did everything right and your broker violated every rule in the book. Yes, you’re entitled to recover all of your losses. But, the broker and his firm have no money. They have no insurance, because they’re not required to have it. There’s nothing we can do to help you.” We’re going to keep pushing until there’s a remedy in place. While Hugh hopes not to have to write another report update in two years, rest assured he’ll keep at it until he doesn’t have to any longer.