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New Procedures Result in Payments and Sanctions.
GAO FOLLOW-UP STUDY:
Responding to Congressional requestors, the U.S. General Accounting Office reported on events and developments following its June 2000 study of unpaid arbitration awards. The GAO’s evaluation of the steps taken by the SEC and the SROs to address GAO recommendations are contained in a letter-form Report dated April 27, 2001.
The earlier Study (see 11 SAC 7 for a detailed summary) “revealed that a significant proportion of awards against brokers had not been paid to investors.” In reaching that conclusion, GAO relied upon survey responses and other techniques to sample “247 of the 845 monetary awards NASD-DR arbitrators made in 1998.” It reported in the June Study that an estimated 52% of the Awards issued in 1998 were “totally unpaid and 12 percent were only partially paid.”
In the latest review, the GAO was not dependent upon survey responses, but could access ready statistics taken from the NASD’s new monitoring program. Starting in September 2000, NASD began requiring members to report when Awards remained unpaid after 30 days and urging investors who won monetary awards to report if the award remained unpaid.
From these figures, GAO was able to report that, “as of December 31, 2000, 38 awards (about 13 percent) out of 296 awards — decided since September 18, 2000, that granted investors monetary relief against a broker-dealer or individual broker — had not been paid in full.”
The new monitoring process also allowed NASD Regulation to take immediate action against delinquents. As to 12 of the unpaid Awards, NASDR instituted summary or non-summary suspension proceedings. The remaining 26 unpaid Awards related to parties no longer in the business.
In addition, GAO reports that NASD investigated reported payment lapses cited by GAO in its earlier report and found that, in all instances, payment had been made, settlements had been reached, or disciplinary action had been taken to address the nonpayment. “NASD-DR’s follow-up effort was effective in that it documented that 18 awards had been paid or otherwise satisfied and resulted in actions taken to eliminate 3 non-payers from the securities industry.”
GAO further enumerates the various steps and actions taken by the SEC, NASD and NYSE to respond to the payment concerns. It regards these steps as “positive” and indicates that, while further monitoring is necessary, “[w]e are not making any further recommendations at this time.” (Reference number for the new report is GAO-01-654R and for the earlier Report, GAO/GGD-00-115, 6/15/00)(SAC Ref. No. 2001-20-02)
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