It was recently reported that three brokerage executives who worked at a now-defunct independent broker-dealer were ordered by a FINRA arbitration panel to pay $1.05 million, plus interest, to a family that invested in high risk private placements that turned out to be Ponzi schemes. A copy of the FINRA Award can be read here.

The three executives formerly worked for Allied Beacon Partners Inc., which ran into financial trouble after the firm lost a large, separate arbitration award and was ordered by a FINRA panel to pay $1.6 million to members of the Bosco family in a 2013 award. After Allied Beacon ran out of capital and violated industry rules it was shut down and FINRA expelled the firm for failure to pay fines and/or costs. When the Bosco family failed to collect the award from Allied Beacon, the plaintiffs then filed another claim, this time naming the three executives.

This story provides a cautionary tale for any broker-dealer firm or registered representative facing an adverse monetary award in a FINRA arbitration. According to FINRA Rule 12904 for customer disputes, all monetary awards must be paid within 30 days of receipt unless a motion to vacate has been filed with a court of competent jurisdiction.

Under FINRA rules, industry parties must comply with Rule 12904 and pay arbitration awards within 30 days or risk suspension by FINRA. Specifically, FINRA Rule 9554 contains expedited suspension procedures that address a brokerage firm’s or broker’s failure to pay FINRA arbitration awards. FINRA can suspend or cancel the registration of a broker or brokerage firm if that party does not comply with an arbitration award or settlement related to an arbitration or mediation. There are very limited defenses to the expedited suspension process.

If you need legal assistance complying with or challenging a FINRA Award, contact The Law Office of Michael A. Nagy, LLC for a free consultation.

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