FINRA Staring at Fresh Wave of Unpaid Arbitration Awards

Taylor Capital Management’s failure shows an increase in unpaid claims is likely.

The Sonn Law Group is investigating allegations that brokers have recommended investments in GPB Capital Holdings or its affiliates without fully disclosing the risk associated with them. If you or a family member has suffered losses investing in GPB Capital Holdings, we want to discuss your case. Please contact us today for a free review of your case.

FINRA issues arbitration awards to investors who win lawsuits against broker-dealers who sold them unsuitable investments or committed misconduct. These awards often go unpaid when broker-dealers are unable to pay the amount of damages the investor is awarded.

FINRA is facing many unpaid claims due to three large scale private placements that are embroiled in legal controversy. Woodbridge Capital, 1 Global Capital, and GPB Capital Holdings are all facing allegations of running Ponzi schemes.

Last month a small broker-dealer in Georgia, Taylor Capital Management Inc., closed amid multiple investor claims alleging brokers’ sales of 1 Global Capital investments, which resulted in a $280 million fraud. 

One investor, Catherine Baker, was awarded $229,000 this month against Taylor Capital in a claim heard in FINRA arbitration. Her lawyer, D. Daxton White, stated, “Taylor capital is apparently inundated in 1 Global case similar to this one. The real story here is that apparently the firm had errors and omissions insurance, but its carrier declined coverage. We are seeing E&O carriers getting more and more aggressive in declining coverage, which forces broker-dealers to either shutter or pursues bad faith claims, which the carrier knows the firm really can’t afford.”

That basically means the customer is out of luck. Although they went through the process of bringing a complaint through FINRA arbitration, they are unable to actually get paid. From 2013-2017, over $167 million in unpaid arbitration awards to customers had been approved. 

This year, FINRA proposed a rule that could require high-risk broker-dealers to shift money to accounts that could be used to fund arbitration awards. The rule is awaiting approval by the SEC.

Small broker-dealers are specifically an issue in these circumstances. Some have minimal capital on reserve and insurance policies with holes in coverage that allow a majority of customer complaints to fall through the cracks. These firms can sell millions of dollars of high-risk investments while having amounts as low as $50,000 or $100,000 on hand to comply with FINRA rules. Such firms aim to generate commissions through sales of expensive alternative investments. There is a risk that these alternatives can run into problems and decrease drastically in value. 

If this happens, these small firms are left with those minimum capital reserves and insurance policies that are written to not cover particular investments, for example, high-risk alternatives or investor claims against specific brokers. Many small broker-dealers sold private placements from GPB Capital, which notified investors over the summer that the collective value of its funds dropped dramatically. 

Whether the SEC approves FINRA’s proposed rule could be a meaningful decision for investors seeking their damages.

Contact Us Today

The Sonn Law Group is currently investigating allegations that brokers recommended investments with GPB Capital Holdings. We represent investors in claims against negligent brokers and brokerage firms. If you or your loved one experienced investment losses, we are here to help. For a free consultation, please call us now at 866-827-3202  or complete our contact form.