Follow-up Report on Matters Relating to Securities Arbitration

GAO-03-162R Published: Apr 11, 2003. Publicly Released: May 13, 2003.
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Our June 2000 report Securities Arbitration: Actions Needed to Address Problem of Unpaid Awards revealed that, although investors had won a majority of awards against brokers, a high proportion of those awards had not been paid. Nearly all of the unpaid awards involved cases decided in the National Association of Securities Dealer's (NASD) arbitration program and most involved brokers that had left the securities industry. A year later we reported on limited data suggesting that the rate of unpaid awards had declined. However, we noted that given the short time period that the data covered, regulators needed to continue monitoring the payment of the awards to determine whether additional steps need to be taken. Arbitration attorneys and claimants have also expressed concern about the timeliness of NASD's updating of arbitrator disclosure information, which can be used by the parties in arbitration to judge the competence and objectivity of arbitrators, and with NASD's ability to remove arbitrators from cases if conflicts arise. In addition, arbitration attorneys also expressed concern about the use of motions to dismiss and motions for summary judgment to terminate NASD-administered arbitration cases. This report responds to requests that we review the status of issues relating to securities arbitration and award payment. Our objectives were to (1) describe NASD's procedures to ensure the timely updating of disclosure information that arbitrators provide and NASD's procedures for removing arbitrators from cases, (2) provide information on the use of motions to dismiss and motions for summary judgment in arbitrations, and (3) describe recent changes in the rate of unpaid awards and the number of arbitration claims filed with NASD.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Other The President, NASD Dispute Resolution, should make available on NASD's Web site current statistics showing the frequency with which arbitration awards against defunct brokers are not fully paid.
Closed – Implemented
NASD has updated its Website to disclose recent information about percentages of unpaid awards and the frequency with which awards against defunct brokers are unpaid.

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