Yesterday, the Financial Industry Regulatory Authority (“FINRA”) published a report stating between 22 and 30 percent of arbitration awards issued through the organization’s forum went unpaid between 2010 and 2016. In addition, as much as 50 percent of the value of FINRA awards were not paid during the same time period. According to a FINRA news release titled, “Statistics on Unpaid Customer Awards in FINRA Arbitration”:
Arbitration cases decided by award in the forum operated by FINRA represent a small subset of all cases closed involving customer disputes. For example, there were 2,457 arbitration cases involving customer disputes filed in 2016, but only 16 percent (389) of these cases closed by award. Another 71 percent (1,747) settled prior to award; 9 percent (212) were withdrawn; and 4 percent (109) closed by other means.
At times when an arbitration panel does award monetary damages to the claimant, the respondent may fail to pay the awarded damages. If a customer is not able to recover monetary damages awarded in the FINRA arbitration forum, that does not always mean that a customer did not receive any monetary payment in connection with the underlying dispute. In many cases that result in unpaid awards, a customer settles with one or more parties pre-award, but proceeds to obtain an award against other parties named in the case, who then fail to pay the award.
A claimant in the FINRA arbitration forum is in a similar position as if the claimant had brought an action in court and been awarded the same amount of damages. As in a court judgment, the responsibility to collect on an arbitration award lies with the claiming party. Similarly, as is the case with federal and state court systems and other arbitration forums, FINRA’s arbitration forum does not ensure payment of damages awarded. Arbitration claimants have access to the same collection tools as in a court judgment: if a respondent fails to pay an arbitration award, the claimant may take the award to court and have it converted to a judgment. The claimant may then attempt to collect on the judgment using the court’s collection procedures.
The press release also addresses potential consequences for FINRA member broker-dealer firms that fail to pay arbitral awards and expanded options for customers to collect payment from such firms. More detailed information regarding FINRA award statistics is available in a related discussion paper titled, “FINRA Perspectives on Customer Recovery.”
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