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1 in 3 FINRA Awards Went Unpaid to Aggrieved Investors, PIABA Says

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Willie Cabbil worked for General Motors for 30 years, at one point as a janitor, only to lose his $340,000 retirement savings in 2011 to former Resource Horizons Group broker, Robert Gist.

FINRA arbitrators found that Gist ran his advisory practice like a Ponzi scheme and used the retirement of the 62-year-old retiree from Alabaster, Ala., to pay other clients' returns on a non-existent investment.

They awarded Cabbil $300,000.

"I was ecstatic to have finally got my life back," he says.

However, Cabbil saw none of that money. FINRA later shut down Marietta, Ga.-based Resource Horizons over its inability to pay millions in client claims, and Cabbil was one of many of Gist’s former clients who never regained a penny. Gist could not be reached for comment.

A former Resource Horizons officer who supervised Gist now works at Kovack Securities in Marietta, along with other former Resource employees. Cabbil says stress related to the loss of his savings has caused health problems that prevent his return to work.

Cases like Cabbil’s are far from unique.


A study released today finds that one in three awards granted to investors in FINRA arbitration disputes went unpaid in 2013. That amounts to one in four dollars that aggrieved investors never see from their awards, according to the Public Investors Arbitration Bar Association, which conducted the study.

"FINRA, like the NASD before it, has remained quiet regarding the issue of unpaid awards," Hugh Berkson, the author of the study, writes. That's because the unpaid award statistics do not paint a favorable picture of the industry.

FINRA did not make Chairman Richard Ketchum or Richard Berry, its director of dispute resolution, available for interviews.

Failure to collect on judgments is not a problem that is unique to the regulator, but is one that persists in the nation's court system and other arbitration forums, according to a FINRA statement.

"FINRA continues to be very concerned with awards to investors that go unpaid," according to the statement. "The Arbitration Task Force looked into the issue of unpaid awards and was unable to reach consensus on a solution. After reviewing actions FINRA currently takes against broker-dealers or associated persons who do not pay awards, it did not propose further steps FINRA could take to help investors get paid. Regardless, FINRA continues to explore a number of solutions and welcomes input from interested parties.”

The FINRA task force recently made more than 50 recommendations to address arbitration issues, but its members did not agree on a remedy for the problem of unpaid awards.

The awards remain unpaid even though FINRA maintains a net worth of $1.47 billion, PIABA points out. In 2013, the regulator returned $23 million in fees to its member firms.


"It's not fair," Cabbil says of this discrepancy. "It breaks my heart."

The study concludes: "Allowing one in three awards to go unpaid is unconscionable."

FINRA, which states that it serves and protects investors as a regulator to the nation’s brokerages and other firms, does not routinely publish the total number of awards its arbitrators grant. It also does not make public the total amounts of money those awards represent, nor the percentage of those awards not paid.

Hours before PIABA released its report, The Wall Street Journal reported that 11% of all awards were unpaid in 2014, citing FINRA data. For the five-year period through 2014, a total of 13% of awards were unpaid, according to the WSJ.com.

Berkson questioned why the regulator did not supply those figures to others who requested them, including members of its staff. FINRA has not explained to PIABA how it arrived at the lower figure, he says.


PIABA researchers began with a single FINRA-released statistic: that $62 million in awards went unpaid in 2013. Then they added up all the cases the regulator published on its website, and found that 225 were decided in favor of investors. Of those, 75 went unpaid.

In its calculations, PIABA includes awards in which court costs were refunded but no refunds were made for losses. The percentage of unpaid awards roughly coincides with earlier estimates as long as a decade ago, according to the report.

PIABA claims FINRA's problem with unpaid awards goes back two decades.

The study also examines several strategies the regulator could take to remedy this situation, and concludes that the most effective strategy would be the establishment of a national recovery pool from which funds could be drawn to satisfy claims like that of Cabbil's.

Such a pool would be funded by the industry, the study proposes, and designed to be depleted every year. A contribution of $100 per broker annually would be sufficient to maintain it, Berkson says.

"Of all of the potential cures to the plague of unpaid awards, the pool would provide the most equitable solution," the study says.

In the meantime, FINRA needs to be more transparent and enable investors to determine whether the forum really is a fair one, says Barbara Roper, director of investor protection at the Consumer Federation of America.

"We have long had concerns about the lack of transparency in the arbitration process," says Roper, who served on FINRA's Arbitration Task Force in recent years.

Cabbil put his faith into FINRA's arbitration process, Cabbi's lawyer Andrew Stoltmann says.

"Never in a million years did I think I would go through this process and then be taken advantage of all over again," Cabbil says.


Today he finds it difficult to sleep, given the stress he feels over the impact of losing his retirement – not only on himself, but on his family. Recently, he was forced to sell his home, he says.

"I am just hoping and praying that something can be done, that I can recover my investment that was taken from me," Cabbil says.

His case vividly illustrates why the system needs to be fixed, Roper says.

"No one who did everything right and saved for retirement and tried to be responsible should find themselves penniless because a broker who's been found guilty of wrongdoing can't make good on their obligations," she says.

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