By: Dowdy White, Spring 2018 IAC Student Intern
As an avid fan of the Atlanta Falcons and the University of Georgia Bulldogs, I know a lot about heartbreak. The feeling of having the lead in a championship game and then ultimately losing is one that I know all too well. Similar to having the lead in a big game, it’s a great feeling thinking that you have money in the bank. In fact, the feeling you get when you think you’re about to come into a major payday is often so great that you treat yourself by going out to dinner, taking a trip to the movie theater, or throwing a party. If the money you think you have in the bank is coming from an award given to you in a FINRA arbitration proceeding, you might want to be cautious – just because you receive an award does not mean you always get paid.
According to a recent paper published by FINRA, FINRA’s arbitration forum does not ensure payment of damages awarded. However, this is the same way in federal and state court systems, so do not fret too much. In a FINRA arbitration proceeding, the responsibility to collect on an arbitration award is on the victorious, claiming party. If the respondent does not pay on the arbitration award, the claimant can take the award to a court and actually have it converted to a judgment. A claimant can then try to collect on the judgment using the court’s collection procedures.
Moreover, under FINRA’s Customer Code, respondents have to pay their monetary awards within thirty days of receiving the verdict against them. To “encourage” member firms or brokers to pay customer awards, FINRA suspends any member firm or broker who fails to pay an arbitration award from the brokerage industry. If the firm or broker cannot raise a valid defense to their payment failure, FINRA says that this threat can be an effective tool to compel award payment.
When FINRA suspends someone, the organization creates a record that the member firm or broker failed to pay an arbitration award, and that member firm or broker is barred from associating with FINRA until the award is paid.
However, the threat of suspension or a suspension itself is only an avenue for redress for active FINRA members. According to FINRA, most arbitration awards that go unpaid are rendered against inactive firms. When a customer brings a matter against an inactive respondent, he can either choose to arbitrate the case anyway, file a case in court, or amend the claim to bring in a respondent who can actually pay.
When you receive an award from a FINRA arbitration proceeding, you can’t automatically count it as money in the bank. Though it seems that you may be winning your arbitration case (like being 28-3 in the Super Bowl – looking at you, Falcons), you can still end up empty-handed in the end. However, FINRA has taken the initiative to bring some clarity to this problem, which we will explore throughout this series.