A recently issued report from the Public Investors Arbitration Bar Association (PIABA) finds that "one out of three cases investors take through to an arbitration hearing and win an award assessing liability and damages goes unpaid … (and) nearly $1 of every $4 awarded to investors in arbitration hearings goes unpaid."
The problem is not new. A Pace Law Review Article in 2005 by Per Jebson bemoaned the almost casino-like approach to securities arbitration, where winning is far from the only battle that had to be waged as a result of the significant amount of awards that went unpaid by broker-dealers.
Proposed fixes have included mandatory insurance, raising the minimum capital limits for broker-dealers, and, as PIABA suggests, the creation of an industry-financed “National Recovery Pool,” which would cost less than $100 per registered representative.
Many of the broker-dealers who have refused to pay arbitration awards have simply gone out of business. The irony should not be missed, as an industry that often notes the need to prepare for unforeseen events seems not, in many cases, to practice what it preaches.