Your brokerage firm mishandled your investment account. You hire a lawyer,
who works for the next year to get you an arbitration decision awarding
you the damages caused by the brokerage firm's misconduct. Then the
firm closes its doors and you do not receive any of the money.
This problem is more prolific than you might expect. Brokerage firms and
brokers failed to pay $50 million in awards to customers in 2012, the
latest year for which data is available. In 2011, unpaid awards totaled
$51 million, or about 11 percent of all awards. The percentage is up from
4% in 2009 and 2010.
How does this happen? Brokerage firms that are entrusted with the life
savings of their clients are not required to have any insurance to cover
the payment of arbitration awards to investors. Most people are not aware
of this, as one would expect that the firms that hold our money would
be obligated to maintain adequate insurance to cover any
misconduct on their part. Drivers are required to show proof of insurance before
they can drive down the road. Doctors are required to carry malpractice
insurance. many states impose similar requirements on lawyers, while others
require them to disclose to clients if they don't have insurance.
Many unpaid awards are against small, independent brokerage firms that
typically are allowed to keep modest amounts - sometimes as little as
$5,000 - on hand under U.S. Securities and Exchange Commission rules.
About 2,350 brokerage firms, or more than half the industry's total,
fall into this category, according to previously unpublished SEC estimates.
These requirements make the financial cushion so thin that just one arbitration
award could put them out of business. The customers of these firms certainly
have no idea that the firm could be one claim away from closing their doors.
The fact that firms can risk millions of dollars of investors' money
and yet are not required to have any insurance whatsoever is a problem
currently being tackled by investors' lawyers.
FINRA, the Wall Street self-regulator that oversees brokerage firms, recently
decided that it cannot force brokerage firms to carry insurance because
it could be prohibitively expensive and difficult to obtain. One possible
solution that investors' lawyers are discussing is prohibiting firms
that are "uninsurable" from selling risky products, such as
privately-issued securities and alternative investments. Those products
are the ones that often lead to arbitration rulings against them.
While the issue remains unresolved, there are a lack of tools for investors
to enforce the laws and duties of their brokers. PIABA expects to publish
a report about the problems in early 2015, which the group hopes will
help educate the public and lawmakers and affect a positive change.
Our six-lawyer firm represent individual and institutional investors who
have claims against stockbrokers, brokerage firms and insurance companies
for investment misconduct. If you would like to learn more about your
legal rights and options, please call Meyer Wilson today at (888) 390-6491
or fill out a
free consultation form.