Hugh Berkson, a principal with McCarthy, Lebit, Crystal & Liffman, is the current President of the Public Investors Arbitration Bar Association. More than 400 PIABA members represent investors nationwide in mandatory arbitration conducted under the auspices of the Financial Industry Regulatory Authority (FINRA). PIABA also promotes the interests of the public investor in securities arbitration, protects investors from abuses in the arbitration process, and fights for legislative reforms to make arbitration fairer.
Unpaid Arbitration Awards
Hugh recently authored a potentially groundbreaking study titled “Unpaid Arbitration Awards: A Problem the Industry Created-A Problem the Industry Must Fix.” This report is receiving national attention from both the press and lawmakers. For instance, on March 3, 2016, Sen. Elizabeth Warren referred to the report when grilling outgoing FINRA chairman Richard Ketchum during his testimony before the Senate Banking Subcommittee on Insurance, Securities and Investments.
As Hugh writes in his report, FINRA disclosed last December that it had issued arbitration awards in 539 customer cases in 2013, with 75 of those awards going unpaid, for a total of $62.1 million. How does the $62.1 million of unpaid awards relate to the total damages issued to investors?
PIABA requested additional information as to how many different firms and persons were involved in those 75 unpaid awards, the size of each unpaid award, and the total amount paid in claims to customers in 2013. FINRA essentially refused to provide the information so PIABA reviewed every award issued in 2013. It found there were 225 awards of damages to investors, with a total of $256.7 million awarded. The 75 unpaidawards represented 33.3% of cases with a Claimant’s award; and the $62.1 million that went unpaid represented 24.2% of the total.
Hugh’s report does not merely specify the problem, however. It also presents a potential solution in the form of a national recovery pool that would provide a source of funds for those investors who carry a claim all the way through award and exhaust reasonable efforts to collect the award from the brokerage firm and/or broker.
If you’d like to read the report for yourself, you can find it here. For a good article about the report, check out The Mysterious Case of the Unpaid Arbitration Awards by Bob Clark, Editor-at-Large for Investment Advisor Magazine.