Lack of funds is no excuse – FINRA

Posted by on Jun 28, 2010 in Uncategorized | Comments(0)

I call it the “30-day rule.” Way back when, arbitrators issued awards and FINRA, then known as the NASD and New York Stock Exchange, really didn’t pay attention once the award was entered. The prevailing party, if owed money, was left to the courts to enforce the award through a motion to confirm the arbitration award. And the prevailing party was left to its collection devices.

Then, things changed. The regulators got interested. FINRA created a rule that required that the award or settlement be satisfied within 30 days of issuance. The “or else” was a summary suspension of the firm’s or broker’s license. This was accomplished through a Rule 9554 proceeding, essentially a “show cause” hearing.

One of the defenses that FINRA had been allowing is the “I can’t pay” defense. A firm or broker could demonstrate that there was a “bona fide inability to pay” and continue to be a broker, defeating the application for a suspension.

All that is changing now. Effective July 2, 2010, if a firm or broker receives a 9554 notice, advising that their license will be suspended, the registrant’s inability to pay is no longer a valid defense. FINRA has issued Regulatory Notice 10-31 explaining its position. Essentially, a loser in an arbitration now has three choices, pay (in one lump or over time), move to vacate the award or file for bankruptcy. If you can’t pay, FINRA says you can’t play.

This makes sense. Why should a broker continue in this business if they can’t honor a properly issued arbitration award? This flies in the face of the FINRA precept of highest standards of commercial honor and just and equitable principles of trade. Sometimes FINRA and I don’t see eye to eye. This time we do.

That’s the view of one Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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