Wall Street Advocate Applauds Proposal for Investor Compensation Fund

Capital Markets Advocacy Group Favors Stock Broker Misconduct Victim Fund

The Securities Industry and Financial Markets Association, or SIFMA, has long advocated free and efficient capital markets in the United States. Recently, the organization came out in favor of a proposal by the securities industry self-regulator, FINRA, to force registered brokerage firms to contribute to an investor compensation fund. The fund would be earmarked for investors who have been injured by broker misconduct and investment fraud, and it would allow them to recover even when a brokerage company has gone bankrupt or out of business.

Not All Securities Arbitration Awards Are Collectible

Since nearly all registered brokerages enforce binding arbitration agreements upon investor clients, aggrieved investors typically find themselves in FINRA arbitration following a dispute with their stock broker or brokerage firm. Unfortunately, investors may go all the way through the laborious process, which takes approximately 18 months, and win an award at arbitration, only to be unable to recover any damages.

FINRA Seeks to Hold Bad Brokers Responsible for Injuries to Investors

FINRA’s proposal, known as Notice 19-17, attempts to address this issue by requiring certain registered brokerage to pay into a victims compensation fund, similar to those created for people injured by medical malpractice or vaccines. The brokerages that would be required to set-aside funds or pay directly into the compensation fund would, according to the proposal, be by and large “bad brokerages,” or broker-dealers that have reached or exceeded a certain threshold of customer disputes and/disciplinary actions.

Since FINRA has repeatedly stated that it has found that “bad brokers” are responsible for a disproportionate number of injuries to investors, the proposal attempts to target those most commonly responsible for the injuries — and non-payment on awards — by compelling them to put up funds ahead of time.

Make Bad Brokers Pay Aggrieved Investors

Like SIFMA, we think it’s a great idea to create a stock broker misconduct compensation fund. While we have been fortunate to recover all or most of the awards we have won through FINRA arbitration, we are well aware that this is not always the case. There is always a deadbeat broker or broker-dealer lurking around the corner, and without a compensation fund to protect investors against non-payment, they will inevitably get off the hook.

Pennsylvania & New Jersey Stock Broker Misconduct Lawyers

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If you or someone you know has been the victim of investment fraud or broker misconduct, please contact our securities attorneys immediately for a free consultation at 215 462 3330 or by using our online contact form.

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