Can collect if you win a broker arbitration but can not collect

Can collect if you win a broker arbitration, but can't collect

It turns out that beating a brokerage firm in arbitration is not always enough to recoup your losses. According to the Wall Street Journal, "More than $34 million in arbitration awards paid to investors in 2014 are legally binding, according to new data from the Financial Industry Regulatory Authority, which tracks the nearly 650.000 stockbrokers in the country regulated, still unpaid. This represents 15% of the total awards granted this year. "

Decisions – or awards – made by the jury in arbitration are legally binding and payable within 30 days of the Financial Industry Regulatory Authority (FINRA). How do so many stockbrokers get off the hook?? Are there no serious financial and legal consequences for non-compliance with the decisions issued by FINRA?

The explanation is pretty simple. The regulatory guidelines for stockbrokers regarding insurance and financial reserves are quite loose. The Securities and Exchange Commission (SEC) only requires brokerage firms to hold between $5,000 and $250,000 in net capital. In fact, more than a third of brokerages across the country are only required to keep the minimum amount on hand, says the Wall Street Journal.

Such a small amount of cash reserves is not enough for brokers who are in the hot seat to settle disputes that are in the thousands, if not millions. Even small awards could force a company to go under, allowing owners to avoid paying those judgments. FINRA has considered, but not acted on, the idea that firms are required to carry insurance that could be used to cover arbitration awards.

The case of arbitration

In recent years, there has been a drive toward arbitration rather than litigation. The reasoning is that arbitration is a win-win for everyone, as it is more cost-effective, less complex than traditional litigation and provides both parties with more flexibility in terms of hearings, the SEC said. In addition, disputes are typically resolved in much less time than a formal case that has gone to a jury. (For more information, see , if a dispute with your broker leads to arbitration.)

Essentially, it's a no-brainer to skip the court system and go through arbitration. But what if the accused party disappears without a trace before paying its outstanding obligations? That's when the investor can start to fail the decision to go through arbitration. (For more information, see Wag it to sue your broker? )

What to do if you can't collect

Fortunately, you have options if you're on the shorter end of the stick. .. Here are two ways to escalate your complaint if the brokerage didn't issue the money in a timely manner.

File a Formal Complaint – FINRA will not accept negligence on behalf of the broker. If FINRA rules in your favor, the firm may "impose fines, suspensions, a cash out of the securities industry, or other appropriate sanctions", states on its website. It goes on to say that in some cases FINRA also "refers complaints to the Securities and Exchange Commission (SEC), other federal or state enforcement agencies, or another private securities regulator for further action or possible prosecution. "You can file a formal complaint online through the Investor Complaint Center or by mail.

Seeking legal representation – still no luck? The good news is that you can still sue the stockbroker even if you've already received damages in arbitration proceedings. In some cases, the repayment process could be expedited if the broker is taken to civil court to recover losses. But it will cost you: you need a lawyer specializing in securities fraud for the best chance of success.