Aside from the pleasure of seeing bad guys get their due through disciplinary action, it’s not often that we rejoice over news from financial industry watchdog, FINRA (Financial Industry Regulatory Authority). Although critical to strengthening our financial self-defense, generally FINRA’s announcements and investor alerts are pretty dry and/or gloomy. After all, it can be disheartening to read, time after time, about the incredible number of scams and fraudsters that are out there just looking for a patsy with a sizeable nest egg… Then comes the news this week that FINRA is considering requiring brokerage firms to carry “errors and omissions” insurance in order to cover payment of arbitration awards to investors. Hallelujah!
If you don’t immediately share our excitement, you may not be aware of what great news this potentially is for investors. Consider this:
In 2011, $51 million or 11 percent of FINRA arbitration awards had not been paid to investors.
That’s a lot of money. It’s money investors like you or someone you know lost to crooked brokers and brokerage firms. It’s money a FINRA arbitration panel felt they were owed. And it’s money they may never see. All because many of the rinky-dink, fly-by-night brokerage that are the subject of disciplinary action and considerable fines by FINRA end up filing for bankruptcy and going out of business instead of paying the awards. It’s far too easy to fold up and skip town for most of these bad apples than to pay up.
Forcing FINRA registered brokerages to carry errors and omissions insurance, on the other hand, could change all that; since presumably no brokerage would be able to offer financial advisory services to investors without carrying the insurance. And that would mean in turn that when they screw up or defraud you, you won’t have to worry about the company vanishing into thin air--and your award in damages vanishing with it.
We’ll keep you posted on FINRA’s progress, but it’s genuinely good and hopeful news for investors who are too often two-time losers, once when they get scammed by a brokerage house; and again, when they win arbitration but find out there’s no firm left to foot the bill.
As always, if you or anyone you know has been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation.