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FINRA May Create Fund for Unpaid Arbitration Awards

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FINRA's CEO Richard Ketchum expressed interest in having FINRA cover unpaid arbitration awards for some of the many investors unable to collect them from the brokers who harmed them.

"Something should be done about it," Ketchum told Sen. Elizabeth Warren (D-Mass.), during testimony March 3 before a Senate subcommittee hearing on Capitol Hill. "We are looking at whether, one way or another, there should be a fund to try to at least address the small investors that are terribly harmed."

Ketchum added: "I do believe this is an issue we want to be part of, we want to work with the SEC on and it is a real concern.”

Read more: 1 in 3 Awards Go Unpaid to Investors, Study Suggests

After noting areas where she believes FINRA is failing to protect investors, Warren urged Ketchum to take meaningful action.

"Something should be done," Warren said. "These are serious issues. They affect ordinary investors. FINRA is supposed to be looking out for these folks, not for the advisory firms and I hope you will address these issues quickly."

The fund, which would require SEC approval, was proposed in a study last month by the Public Investors Arbitration Bar Association.


The study found that as many as a third of all arbitration awards went unpaid in 2013. That year, it amounted to $62 million that investors never received even after they went to the time and expense of seeking justice through the regulator's troubled arbitration system.

The fact that Ketchum raised the idea of the fund during Senate testimony "suggests that it's getting serious consideration," says Barbara Roper, director of investor protection at the Consumer Federation of America. Roper recently served on a FINRA task force that made recommendations about problems with arbitration.


Hugh Berkson, PIABA's president and the author of the study, says he is thrilled by Ketchum's remarks – and frustrated.

"I could also see where [Ketchum] was going to try to minimize the pool," Berkson says, referring to the fact that Ketchum said such a fund could at least address smaller investors. However, "Something is better than nothing," he adds. "I'm glad he said it. I want to hold him to it."

A FINRA spokeswoman declined to respond to questions about Ketchum's remarks.

The testimony came just before PIABA's members descend on Capitol Hill to lobby lawmakers this week. Its members have 90 meetings scheduled with members of Congress on Friday.

All of those meetings will focus on the recovery fund as a top priority, Berkson says.

It's incumbent upon the self-regulator to do something about the high number of unpaid awards, some of which will go to restore retirement savings that many brokers were found to have stolen, Roper says.

"The harm to individuals under the current system is devastating," she says. "If you can come up with a way to make a meaningful dent in that problem, why wouldn't you do it?"

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