Member Firms and Associated Persons with Unpaid Customer Arbitration Awards

FINRA is making available in one place on its website a list of firms and individuals responsible for unpaid customer arbitration awards. FINRA is providing the information in this new format to provide greater transparency around those firms and individuals with unpaid arbitration awards and to make this information more readily accessible to investors. The information will also continue to appear on the firm’s or individual’s BrokerCheck report.

The list includes the names of firms and individuals whose FINRA registration has been terminated, suspended, canceled or revoked, or who have been expelled from FINRA.¹ These firms and individuals are no longer FINRA members or associated with a FINRA member, although they may be operating in another area of the financial services industry where FINRA registration is not required. From 2012-2021, FINRA suspended 255 individuals for non-payment of arbitration awards. During this same time period, there were on average 631,000 individuals registered with FINRA.

In addition, the list shows those firms and individuals with unpaid customer arbitration awards, but where bankruptcy is a defense to the non-payment. These firms or individuals may be active in the brokerage industry notwithstanding the unpaid award due to the bankruptcy defense to non-payment.²

Background

In FINRA arbitration cases closed in 2021, the majority of customer cases—73 percent—result in settlements reached by the parties;³ 13 percent of cases proceed to award, and 1 percent result in unpaid awards.⁴

As described in detail in FINRA’s Discussion Paper, FINRA Perspectives on Customer Recovery and on FINRA’s website under Statistics on Unpaid Customer Awards in FINRA Arbitration, under FINRA rules, a respondent must pay a monetary award within 30 days of receipt, unless the respondent has a defense to non-payment, such as bankruptcy.⁵ If a member firm or associated person fails to comply with an arbitration award or a settlement agreement related to an arbitration, FINRA staff notifies such firm or associated person in writing that the failure to comply within 21 days of service of the notice will result in a suspension of membership or a suspension from associating with any member.⁶ A member or person served with a notice may request a hearing setting forth all defenses to the FINRA action. If a member or person does not timely request a hearing, the suspension or cancellation specified in the notice shall become effective 21 days after the service of the notice and the notice shall constitute final FINRA action.

In each suspension action, FINRA creates a record that the firm or associated person failed to demonstrate payment of an arbitration award, and prevents the firm or associated person from being an active FINRA member or associating with a FINRA member until the award has been satisfied. Firms with unpaid awards cannot re-register without satisfying the award.⁷ Individuals cannot register as representatives of any brokerage firm without paying or discharging the outstanding award.

Most unpaid customer arbitration awards are rendered against firms or individuals whose FINRA registration has been terminated, suspended, canceled or revoked, or who have been expelled from FINRA. These firms and individuals are generally referred to as “inactive,” and are no longer FINRA members or associated with a FINRA member, although they may continue to operate in another area of the financial services industry where FINRA registration is not required. Firms and individuals can become inactive prior to an arbitration claim being filed, during an arbitration proceeding or subsequent to an arbitration award, and this status can be caused by FINRA’s action or the firm’s or individual’s own voluntary action.

The below information is current as of December 2022.

TABLE 1 - ASSOCIATED PERSONS SUSPENDED FOR NON-PAYMENT OF A CUSTOMER ARBITRATION AWARD (2012 – 2021)

TABLE 2 - ASSOCIATED PERSONS ASSERTING BANKRUPTCY AS A DEFENSE TO NON-PAYMENT OF A CUSTOMER ARBITRATION AWARD (2012 - 2021)

TABLE 3 - INACTIVE FIRMS WITH UNPAID CUSTOMER ARBITRATION AWARDS⁸ (2012 – 2021)

TABLE 4 - FIRMS ASSERTING BANKRUPTCY AS A DEFENSE TO NON-PAYMENT OF A CUSTOMER ARBITRATION AWARD (2012 – 2021)

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1 Individuals who have been suspended by FINRA will not appear on this list until the decision becomes final FINRA action and the time period provided for an appeal permitted under the Exchange Act has expired. 

2 The “automatic stay” under the Bankruptcy Code generally stays any action to collect a debt owed by a person that has filed a bankruptcy petition (or become the subject of a liquidation under the Securities Investor Protection Act (SIPA)). In the unusual circumstance where a bankruptcy court determines an arbitration award not to be dischargeable in the bankruptcy (or SIPA liquidation), and the customer claimant notifies FINRA of this fact, FINRA will commence expedited suspension proceedings against the firm or individual under FINRA Rule 9554.

Creditors with claims allowed by the bankruptcy court generally are entitled to receive distributions or payments on their claims from the liquidation of the bankrupt person’s assets (or under a plan approved by the court in the case of a bankruptcy under Chapter 11 or 13 of the Bankruptcy Code). Although these payments may be considerably less than the amount of the claim (and may even be zero), they nevertheless generally discharge the claim. Customers with arbitration awards against a firm or associated person that has entered bankruptcy therefore may receive only a fraction of their award, or even nothing, when that award is discharged in bankruptcy.

3 In FINRA’s experience, the vast majority of settlements result in monetary relief for the customer claimant.

4 While FINRA’s arbitration forum is used for both intra-industry and customer disputes, these data are limited to customer disputes. All data provided are current as of its publication date, and may change due to subsequent developments.

5 See FINRA Rule 12904(j). An associated person or firm has four available defenses to FINRA disciplinary measures for non-payment in customer cases: (1) the firm or associated person paid the award in full; (2) the parties have agreed to installment payments or have otherwise settled the matter; (3) the firm or associated person has filed a timely motion to vacate or modify the award and such motion has not been denied; and (4) the firm or associated person has filed a petition in bankruptcy and the bankruptcy proceeding is pending or the award has been discharged by the bankruptcy court. See Notice to Members 00-55 (August 2000).

6 See FINRA Rule 9554. Also, FINRA can institute suspension proceedings against formerly associated persons for failing to pay an award or settlement in a matter submitted for arbitration or mediation pursuant to FINRA rules for a period of two years after the entry of the award or settlement. See Article V, Section 4(b) of the FINRA By-Laws; Notice to Members 04-57 (August 2004).

7 With respect to new member firms, in accordance with the standards for admission under the rules governing FINRA’s Membership Application Program, FINRA can presumptively deny a new membership application if the applicant or its associated persons are subject to an unpaid arbitration award. See FINRA Rule 1014(a).

8 These firms are inactive because their FINRA registration has been terminated, suspended, canceled or revoked, or they have been expelled from FINRA. This inactive status could have been caused by FINRA’s action, such as a suspension proceeding for non-payment of an arbitration award, or by the firm’s own voluntary action, such as by filing a Form BDW (Uniform Request for Broker-Dealer Withdrawal). FINRA creates a record that the firm failed to pay an arbitration award and will prevent the firm from re-registering with FINRA without paying or discharging the outstanding award.