The Financial Industry Regulatory Authority (FINRA), the industry group that regulates stockbrokers and brokerage firms, announced that it will not force firms to carry insurance to pay awards to customers who have lost money due to negligence or fraud.
FINRA has been studying this issue for the past year and came to the conclusion that it cannot impose this requirement on brokerage firms, many of which have net capital of less than $100,000. In September 2014, damaged investors won a nearly $4 million judgment against Resource Horizon Group for improper supervision of a broker who was running a Ponzi scheme on the side. Since their net capital is less than $600,000, they are presently considering bankruptcy, according to their lawyer.
Many investors are confused thinking that the FDIC and SIPC logos they see ensure that if they have a problem with their brokerage account, funds will be there to compensate them. The reality is that if an investor has an account with one of the many small, undercapitalized brokerage firms (there are over 5,000 broker dealers) there may be no pocket from which to recover should the nest egg be lost due to fraud or negligence.
According to FINRA brokerage firms have failed to pay over $100 million in customer awards in 2011 and 2012.
To research the history of a stockbroker on the FINRA BrokerCheck website or to learn how to determine the net capital of your brokerage firm on the SEC Edgar website, see our informational page on those topics.
Rex Securities Law provides nationwide representation to investors seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.
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