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Proposed Bill Would Make Sure Defrauded Investors Don't Get Stiffed

A new bill called the Compensation for Cheated Investors Act would require FINRA to pay investment losses back to investors from a pool of funds. Unpaid arbitration awards would be funded by penalties charged to FINRA broker-dealer members.

The Compensation for Cheated Investors Act

Massachusetts Senator Elizabeth Warren recently introduced a bill that would require FINRA, the Financial Industry Regulatory Authority, to create a pool to pay arbitration judgments against its member brokerage firms. Unpaid arbitration awards would be paid from a pool of funds established by penalties charged to FINRA broker-dealers. FINRA would be required to track payments and make sure that future arbitration awards are paid to investors. Senator Warren declared that investors have lost millions of dollars to unpaid arbitration awards. The Compensation for Cheated Investors Act would ensure that FINRA was protecting investors from investment fraud.

Attorney David Meyer is an officer and director of the Public Investors Arbitration Bar Association (PIABA). According to PIABA, there were unpaid arbitration awards that totaled $62 million in 2013, and that figure represents only 25 percent of total arbitration awards for that year. In 2015, The United States General Accounting Office recommended that FINRA's Dispute Resolution Task Force take a closer look at the significant number of unpaid awards and address procedures to pay back losses caused by failed broker-dealer members.

In a recent paper published by FINRA, regulators announced a plan to hold discussions that address the issue of unpaid arbitration awards to investors. FINRA indicated that they wanted to identify information that will improve protection for investors against investment fraud from broker-dealers. FINRA is also seeking rule amendments that will prevent broker-dealers charged with investment fraud from switching brokerage firms and using asset transfers to avoid paying arbitration awards.

Under the Compensation for Cheated Investors Act, FINRA would be required to do the following:

  • Ensure there is sufficient money in the relief fund pool at all times to pay each investor who submits a claim the full amount owed.
  • May not prohibit any investor from filing a claim.
  • May not limit the award amount than an investor may receive from the relief fund.
  • Must ensure that the relief fund is funded first by penalties paid by broker-dealer members, then from other FINRA sources.
  • Must issue annual disclosures on a public website.

If you have been a victim of investment fraud, contact the attorneys at Meyer Wilson for claims assistance and a free consultation at 888-390-6491 today.

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The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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