The Honorable James F. Hinchman
Acting Comptroller General
General Accounting Office
441 G Street, N.W.
Washington, D.C. 20548

Dear Mr. Hinchman:

I am writing with reference to recent press reports, e.g. "Investors Find That Arbitration Claims Against Their Brokers Don't Always Pay," Wall Street Journal, Wednesday, July 29, 1998 (enclosure), indicating that numerous investors are not receiving the monies awarded to them in the securities industry's mandatory arbitration proceedings. The number of unpaid arbitration awards reportedly has mushroomed in tandem with the growth of small firms that specialize in highly speculative small-company shares along with the explosion of micro-cap stock fraud. There is no effective enforcement mechanism in arbitration. Increasingly, firms are not showing up for hearings or are using bankruptcy -- or its threat -- to avoid payment.

The rise in unpaid claims has resulted in plaintiffs attorneys increasingly requiring that investors pay them on an hourly basis, which can mean tens of thousands of dollars in legal bills, instead of accepting a standard contingency fee. Many are turning down arbitrations involving small firms altogether.

This represents a devastating blow to American investors on top of the vote in the House last week on H.R. 1689 to slam the State courthouse doors to investors who are forced to band together to bring lawsuits to protect their savings and investments and recover defrauded monies. I oppose that legislation.

I respectfully request that GAO update its May 1992 report Securities Arbitration: How Investors Fare (GAO/GGD-92-74) to include an assessment of the extent to which GAO's recommendations have been implemented or remain undone, and assess the effectiveness of any changes that have been made. In conjunction with this work, please look into the disturbing reports about widespread nonpayment of arbitration awards, assess its extent and its implications - - for investors, for the securities industry, and for the micro-cap market -- and provide whatever recommendations you deem appropriate. I stand ready to fight for whatever legislative changes prove necessary to improve the protection of investors in this matter.

Thank you for your cooperation and attention to my request.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

Enclosure

cc: The Honorable Tom Bliley
The Honorable Michael G. Oxley
The Honorable Thomas J. Manton

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