What Happens After Winning an Arbitration Case?
When an arbitration concludes, the arbitration panel has up to 30 days to make a decision (although the timing varies with other arbitration forums like the American Arbitration Association). When the award is distributed to the parties, it will state how much the investor is entitled to, and may include a requirement that the firm pay interest on the amount of the award until it is paid. The firm is required to pay the award within 30 days of the date when the award is distributed.
In most cases, firms will simply comply with the award and pay the awarded amount within the 30 days allowed. FINRA holds the license for the registered representative or broker dealer to do business in the financial services industry. If the award is not paid as ordered by the panel, FINRA will suspend the delinquent firm or representative’s license until it is paid. That suspension means the firm or individual can no longer legally earn fees or commissions in the industry until the suspension is removed, if it ever is. This is a tremendous amount of leverage that typically avoids the need to go into collection proceedings to try to find assets to size to satisfy an award that are necessary in many court cases.
FINRA will not suspend a license while a respondent is seeking to have a court overturn the award, called a motion to vacate the award. This requires the firm to file a new proceeding in a court claiming that the arbitration award is invalid for some reason. However, the law is very clear that these challenges are subject to one of the most difficult standards that exist in the United States, meaning that motions to vacate are rarely successful. Due to the difficulty in succeeding in one of these challenges, most awards go without such a challenge.
Unfortunately, some awards fall into a third possibility where the firm simply can’t or won’t pay the award. If a firm isn’t capable of paying a substantial award, even the threat of the loss of its license can’t ensure payment. Currently, firms are not legally required to carry insurance to cover these types of claims, so if they don’t have assets sufficient to cover the award, they simply shut down. This leaves the claimant in the position of trying to track down whatever assets the firm may to satisfy as much of the award as possible.
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