Former NFL player Bruce Wilkerson would finally receive the $610,000 arbitration award he was granted in 2015 if legislation introduced Tuesday by Sen. Elizabeth Warren is passed into law, or if regulators addressed the growing unpaid arbitration award issue via rulemaking.
Warren’s bill, The Compensation for Cheated Investors Act, directs FINRA to establish a pool funded by penalties from broker-dealer members that will “pay unpaid final arbitration awards and require it to track whether future arbitration awards are paid.”
Wilkerson, now 53 — who spent a decade playing football for the Los Angeles Raiders, the Jacksonville Jaguars and the Green Bay Packers — invested $610,000 with advisor Robert Gist of Resource Horizon Group and lost all of it.
In 2013, Gist entered into a $5.4 million settlement with the Securities and Exchange Commission, after the agency alleged he converted funds from at least 32 investors, including Wilkerson.
The loss, Wilkerson said on a Wednesday morning press call, “deeply affected my life, and my ability to retire in comfort.”
The Public Investors Arbitration Bar Association released a report on Wednesday stating that the unpaid arbitration awards problem appears to be getting worse.
Newly updated statistics released by the FINRA Arbitration Task Force indicated that, in the five years from 2012 through 2016, a total of 268 awards (27% of the cases where investors were successful) or $199 million in awards (29% of total damages awarded to investors) have gone unpaid, the report states.
PIABA states that it studied the 2017 award data, and found that the trend continues: 36% of the investors who won their cases collected nothing, and 28 cents of each dollar awarded have gone unpaid.
“The data reveal that the problem is not fixing itself, and the steps taken by FINRA thus far have not effectively addressed the problem,” PIABA said.
In addition to the FINRA Arbitration Task Force data, PIABA states that it reviewed the arbitration awards issued in 2017, and determined that investor awards totaled $73.3 million.
PIABA then determined that $20.6 million of those awards were issued against brokers or firms that were no longer registered, “a characteristic making it probable that the awards went unpaid.”
Using this rule of thumb, PIABA said that it concluded that 35.92% of investor awards went unpaid (51 of 142 investor arbitration awards) and 28.18% of the dollars awarded to investors in 2017 were unpaid.
PIABA said that it anticipates these figures will be “substantially similar” to FINRA’s official statistics for 2017, once they are published.
Wilkerson said he “made the mistake” of entrusting his money to Gist, who “gained my trust and told me … he would invest conservatively” in corporate bonds and other securities, but instead used the money “for improper purposes” such as his own personal expenses and those of a company he controlled, as well as to pay “dividends” and “proceeds” to other investors for false securities transactions he claimed to have made on their behalf.
Wilkerson filed an arbitration claim against Resource Horizon for Gist’s actions.
In March 2015, the arbitrators awarded him his full losses of $610,000– a sizeable portion of his net worth — as well as other statutory damages.
However, not soon after the award was issued, FINRA canceled Resource Horizon’s registration.
No longer registered or under FINRA’s jurisdiction, Resource Horizon failed to pay Wilkerson’s award, along with others.
After retiring from football, Wilkerson began working as a machinist at an Alcoa facility in Tennessee, where he still works.
Said Wilkerson: “My outlook for retirement: working many years into my late 60s.”
Legislation Not Needed
While a discussion paper published by FINRA on Feb. 8 floated the idea of a proposed rule, and updated statistics on unpaid awards, and the self-regulator “welcomed discussion on this long-running problem,” it “did not indicate that it is pursuing any particular solution,” PIABA said.
“We don’t really need legislation,” to fix the problem, said Andrew Stoltmann, PIABA’s president, on a Wednesday morning press call to discuss the report’s findings.
FINRA or the Securities and Exchange Commission could write a rule to create the funding pool. “So far, they’ve been unwilling to do it,” Stoltmann said.
PIABA offered three potential solutions in its report to address the unpaid arb awards issue:
Expand SIPC coverage: Require a fund be set up at the Securities Investors Protection Corp. to pay the unpaid awards. However, this may not be the best option, the group said, as SIPC’s fund is “in constant jeopardy of depletion.” SIPC, the group said, “has long been criticized for its refusal to pay investor claims.”
Insurance. The FINRA discussion paper identifies “other insurance options” as a possible remedy to unpaid awards. FINRA says insurance could be required, perhaps in the form of commercial insurance products or a captive insurance program. What FINRA’s discussion paper omits, and what PIABA pointed out in its Unpaid Awards Report, is the fact that FINRA has gone on record a number of times stating that insurance is too expensive and is therefore not a viable option.
Investor recovery pool. FINRA indicates that a pool is one possible remedy. Of the options PIABA and FINRA have set forth, a pool is the most viable option available to address the payment of awards.
FINRA “fine money remains the best way to fund the pool,” Stoltmann said.
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