FINRA is seeking to close a loophole. As many people know, if a broker or brokerage firm is found liable in an arbitration, the responsible party has 30 days to pay or move to vacate or modify the arbitration award. This is quite a hammer to have.
But there is an out. If the broker states that he/she does not have the funds to pay the award, then FINRA can allow the broker to stay in the business, service clients and look to the world as if he has not a care. This is probably frustrating to claimants and their lawyers.
FINRA is looking to change this state of affairs. In a proposed rule filing, FINRA is suggesting that “inability-to-pay” is no longer a defense for failing to pay. If you can’t pay, you can’t work, says FINRA (the proposed rule can be found here.. FINRA’s solution? Let the broker file for bankruptcy.
My question is this – how does a bankruptcy cure this? If the broker doesn’t have money, then the client doesn’t get paid. If the broker has money, but is pretending to be broke, eliminates the defense but doesn’t necessarily get the client paid. If the broker is willing to lie about being broke, what makes FINRA think that the broker will say “OK, you got me.” and pay off the award. Not bloody likely.
But still, it makes sense that, if a broker is destitute and in debt beyond his/her eyeballs, bankruptcy may be the better solution. And as FINRA points out, getting the broker under oath under the penalties of perjury is probably a better place to air this out.
And besides, my sister could use the work.
That’s the view from one Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.