Florida Bar Journal

Florida’s Securities Guaranty Fund: An Instagram Worthy Model

In October 2024, as part of a multi-year collaboration between the Business Law Section of The Florida Bar and the Office of Financial Regulation (OFR) to modernize the Florida Securities and Investor Protection Act (FSIPA), the Florida Legislature passed sweeping amendments to its securities fraud restitution statute, the Securities Guaranty Fund (fund). The amendments broadened the eligibility criteria for victims of Florida securities fraud violations who hold uncollected civil judgments or restitution awards. The definition of final judgment was expanded to include court confirmed arbitration awards, making Florida the first state to include such awards in a civil securities restitution fund. The amendments also provide for receivers to recover on behalf of securities fraud victims. The new legislation increased the amounts recoverable by victims, enhanced the recovery allowable for any “specified adult,” streamlined the claims process, and significantly shortened the approval process. Florida’s new eligibility provisions make this the broadest state restitution fund in the country. The fund can serve as a model for other states to provide a source of recovery for securities fraud victims who hold uncollectable judgments, confirmed arbitration awards, or restitution orders.

History of the Securities Guaranty Fund

Originally titled the “Security Guaranty Fund,” it was initially enacted in 1978 to provide relief to victims of FSIPA violations who are entitled to monetary damages, but who could not recover the full amount of their damages from the offender.^[1] The fund was capitalized through the collection of additional licensing fees from dealers, investment advisers, agents (brokers), and branch offices registered with the state.^[2] The statute provided that if the fund at any time exceeded $250,000, collection of these special fees would be discontinued at the end of that license year, and would not be reimposed unless the fund fell below $150,000.^[3] It was anticipated that the initial capitalization of the fund would take three years absent any claims.^[4]

The fund provided for disbursements to any person adjudged by a court of competent jurisdiction to have suffered monetary damages as a result of any Florida licensed dealer, salesman, or investment adviser who was adjudged to have committed a violation of F.S. §517.07 (registration of securities), F.S. §517.301 (fraudulent transactions), or F.S. §517.311 (false representations). Eligibility for payment under the fund required a judgment for a violation of any of these three enumerated sections.^[5]

As originally enacted, the statute allowed recovery when: 1) a writ of execution was issued and there was insufficient or no personal or real property of the judgment debtor to satisfy the judgment in full; 2) reasonable searches and inquiries discovered no property or assets, or discovered some property and assets but the amount realized was insufficient to satisfy the judgment; and 3) the judgment holder had applied any amounts recovered from the judgment debtor or from any source to the damages awarded by the court.^[6] To be eligible to collect under the fund, the act for which recovery was sought must have occurred on or after January 1, 1979.^[7]

Payments from the fund were prescribed in F.S. §517.141, which established the claims process. It provided that any person meeting all the enumerated conditions of F.S.§517.131 may apply for payment from the fund in the amount equal to the unsatisfied portion of the judgment, or $10,000, whichever is less, but only to the extent any amount reflected in the judgment constituted actual or compensatory damages.^[8] Upon receipt of payment from the fund, the claimant was required to assign any additional right, title, and interest in the judgment, to the extent of such payment, to the Department of Banking and Finance (department).^[9] The total number of aggregated claims against any one dealer, salesman, or investment adviser was limited to $100,000, regardless of the number of claimants involved, after which the department would pay out on a prorated basis based upon the ratio of each person’s claim to the total claims filed.^[10] If the fund had insufficient money to satisfy any valid claim, the department would pay the claim once sufficient money was deposited in or transferred to the fund, at which time the claims would be paid in the order in which the claims were filed.^[11] Payments from the fund were to be made by the treasurer upon a voucher signed by the comptroller, or its designated agent.^[12]

Amendments to the Fund Mandate New Eligibility Requirements

In 1984, the statute was amended including a name change to “Securities Guaranty Fund” and the requirements for eligibility and payment were made more robust.^[13] The most significant of these changes were the notice requirement and two-year waiting period provided for in the claims process, which mandated that no payments “shall be made on any claim against any one dealer, investment adviser or associated person before the expiration of [two] years from the date any claimant is found by the department to be eligible for recovery pursuant to this section.”^[14] Further, it limits recovery when if, during this two-year period, more than one claim or notice of potential claim was filed against the same dealer, investment adviser, or associated person exceeding the $100,000 cap. In that instance, the claims would be handled by a special procedure and claimants would be paid pro-rata under the $100,000 cap.^[15]

While these provisions were added to provide a procedure whereby all claimants against the same entity or person with a pending suit or judgment could make claims under the $100,000 cap,^[16] the amendments made the process lengthier and more complex as the waiting period became two years after an eligibility determination was made, and the initial amount recoverable could be reduced by the existence of potential claims. Under these amendments, the process became more byzantine: filing a claim, obtaining an eligibility determination, waiting two years (if this was the first claim against an entity), delayed by yet another period of time while the department analyzed claims and pending claims against the entity, receiving a pro rata share if the total claims were projected to exceed $100,000, and waiting to be paid any excess after all claims were made. It is not clear how many claims were paid out once this new claim procedure was implemented, but these amendments attempted to address the problem of inequitable distribution of the $100,000 limit where there were multiple claims against a particular fraudster.

A Catastrophic Event Leads to the Creation of an Additional Fund

The $100,000 cap on total claims against one entity or person seemed sufficient, until it wasn’t. The failure of GIC Government Securities, Inc. (GIC) in the mid-1980s caused Florida investors to incur an estimated $40 million in losses. GIC marketed what it claimed were safe short-term investments backed by long-term U.S. government securities, when in fact this was not the case; the investors’ funds were simply used to prop up GIC’s failing business.^[17] Approximately 1,300 Floridians, many of whom were elderly, lost their life savings or suffered devastating monetary losses due to GIC’s collapse. Although some money had been paid out through related rescission and bankruptcy proceedings, many of these victims obtained judgments that were unsatisfied, and they were unable to obtain adequate reimbursement from the fund.^[18] Finding that, between April 1985 and October 1985, personnel in Florida’s Division of Securities and Investor Protection were “remiss in permitting the sale of securities which should not have been allowed to be sold,”^[19] the Florida Legislature stepped in and created a new statute in 1998 to fully compensate these victims to “repair the harm these fraudulent securities activities have inflicted on the integrity of the Florida securities market and the trust vested in the state to regulate this market.”^[20]

Prior to October 1, 1996, the fund had disbursed over $1 million for GIC claims. However, many of the victims of GIC’s fraud were unable to obtain adequate reimbursement for claims filed with the fund.^[21] The department estimated that approximately $6.2 to $10.5 million in claims remained outstanding.^[22]

The Fund Is Used for the Investment Fraud Restoration Financing Corporation

In 1998, to fund repayment in full to the victims of the GIC fraud, and to restore faith in Florida’s securities regulation, the Florida Legislature created the Investment Fraud Restoration Financing Corporation (IFRFC).^[23] IFRFC permitted money originally allocated to the fund to be used to pay GIC victims with claims for FSIPA violations through this non-profit organization. Approved claims were to be paid out under F.S. §517.1203. The corporation was scheduled to terminate on July 1, 2021, or upon fulfillment of its purpose, whichever occurred earlier. An amendment was also added to the fee assessment provisions for the fund allowing for the fund to be disbursed for payment of the GIC claims by the IFRFC administrator and providing for the assets of the IFRFC to revert to the fund after the IFRFC was dissolved.^[24]

In order to fund the IFRFC, fee assessments on associated persons were raised from $30 to $40^[25] and an additional 25% of all assessment fee revenues from applications and renewal fees were allocated to the fund.^[26] The maximum balance in the fund at which the collection of the assessment fee would cease being deposited into the fund was increased from $250,000 to $1.5 million.^[27] In 1998, the department estimated that the assessments and additional allocations of assessments were generating $1.7 million per year; therefore, the projected period of time to pay all GIC claims would be four to six years.^[28] After the payouts were completed, the IFRFC was voluntarily dissolved on January 30, 2008.^[29]

The Fund Gets a Refresh

Following payment of the GIC claims and dissolution of the IFRFC in 2008, the fund remained relatively unchanged. Then, in late 2024, as part of the entire overhaul of Florida’s securities laws, the fund received a much needed refresh. The fund’s amendments were based on the recommendations contained in the report issued by the Ch. 517 Task Force of the Business Law Section of The Florida Bar in coordination with OFR to enhance investor protection. A significant number of changes were made by the amendments including, among other things: 1) providing for recovery for unpaid arbitration awards confirmed by a court of competent jurisdiction, in addition to final judgments in court; 2) removing the two-year waiting period for compensation; 3) increasing the amount an eligible person may recover from the fund from $10,000 to $15,000 and increasing the aggregate limits on claims from one entity from $100,000 to $250,000; 4) removing barriers to apply including eliminating the requirement that the wrongdoer be a dealer, investment adviser, or associated person registered under Ch. 517; 5) permitting receivers to apply on behalf of eligible persons; and 6) adding an enhanced recovery of up to $25,000 if the victim is a specified adult.

Summary of Significant Amendments to the FundEffective October 1, 2024, these amendments made access to the fund more expansive, efficient, and straightforward, allowing the fund to better accomplish its legislative purpose of providing monetary relief to all victims of violations of Ch. 517 who are entitled to such relief and cannot recover the full amount of their adjudicated entitlement from the wrongdoer. ^[30]

Eligibility for Fund

Subsection (1) is amended to define “final judgment” as including an arbitration award confirmed by a court of competent jurisdiction.^[31] Once an arbitration award containing a finding of a violation of F.S. §517.07 or F.S. §517.301 is confirmed in court, a claim can be filed with the fund. This amendment greatly broadens access to the fund as it is mandatory that all disputes against Financial Industry Regulatory Authority (FINRA) registered broker-dealers and associated persons be arbitrated through FINRA rather than through traditional court litigation. The problem of unpaid FINRA arbitration awards has been a plague on the industry as bad actors often disappear leaving victims with uncollectable judgments.^[32] With this amendment, holders of court-confirmed arbitration awards for securities fraud violations in Florida now have a source of recovery not afforded by any other state.

Subsection (1)(b) is amended to specifically include an aggrieved person in a restitution order as eligible under the fund, further broadening its scope.^[33] This provision also eliminated the requirement that the wrongdoer be registered with the state allowing for victims of unregistered fraudsters to recover, further increasing access to the fund.

Subsection (3)(a) allows for payment from the fund if a person: 1) is a judgment creditor in an unsatisfied final judgment or a named beneficiary or victim in an unsatisfied restitution order entered on or after October 1, 2024,^[34] in which a wrongdoer was found to have violated §517.07 or §517.301; 2) has applied any amounts recovered from the judgment debtor, a person ordered to pay restitution, or from any other source to the damages awarded in a final judgment or restitution order; and 3) is either a natural person who was a resident of this state, or is a business entity that was domiciled in this state, at the time of the violation giving rise to the claim or is a receiver appointed by a court of competent jurisdiction for a wrongdoer ordered to pay restitution under F.S. §517.191(3) for a violation of §517.07 or §517.301, who has requested payment from the fund on behalf of a person eligible for payment.^[35] In addition to natural persons, this amendment adds business entities domiciled in the state to the eligibility section. This is important as accounts are often titled in the names of trusts by elderly investors. Receivers are now also entitled to recover from the fund on behalf of eligible persons.

Subsection (4) of F.S. §517.131 prohibits a person from being eligible for payment from the fund if the person has participated or assisted in, attempted to commit or committed, or profited from a violation of Ch. 517.^[36] The North America Securities Administrators Association’s Model Restitution Assistance Fund Act (NASAA Model Act) contains a similar provision which prohibits bad actors from profiting from their own fraudulent activity.^[37]

Approval Process and Timeline

Subsection (5) is amended to revise and clarify the minimum information required to be provided on an application for payment from the fund and to include restitution orders. It also mandates a strict one-year period from the date of the final judgment, restitution order, or appellate decision to seek payment from the fund. It additionally sets forth the minimum specified information and documentation required in the application:

(a) The eligible person’s and, if applicable, the receiver’s full names, addresses, and contact information.

(b) The name of the judgment debtor or person ordered to pay restitution.

(c) If the eligible person is a business entity, the eligible person’s type and place of organization and, as applicable, a copy, as amended, of its articles of incorporation, articles of organization, trust agreement, or partnership agreement.

(d) A copy of any final judgment.

(e) Any restitution order.

(f) An affidavit from the eligible person stating either one of the following:

1. That the eligible person has made all reasonable searches and inquiries to ascertain whether the judgment debtor or person ordered to pay restitution possesses real or personal property or other assets subject to being sold or applied in satisfaction of the final judgment or restitution order and, by the eligible person’s search, that the eligible person has not discovered any property or assets.

2. That the eligible person has taken necessary action on the property and assets of the wrongdoers but the final judgment or restitution order remains unsatisfied.

(g) If the application is filed by a receiver, an affidavit from the receiver stating the amount of restitution owed to the eligible person on whose behalf the claim is filed; the amount of any money, property, or assets paid to the eligible person on whose behalf the claim is filed by the person over whom the receiver is appointed; and the amount of any unsatisfied portion of any eligible person’s restitution order.

(h) The eligible person’s residence or domicile at the time of the violation of §517.07 or §517.301 which resulted in the eligible person’s monetary damages.

(i) The amount of any unsatisfied portion of the eligible person’s final judgment or restitution order.

(j) Whether an appeal or motion to vacate has been filed.^[38]

Subsection (6) provides that if the OFR finds that a person is eligible, approval for payment from the fund must occur within 90 days after receipt of a complete application, and the OFR must give written notice that it intends to approve or deny, or has approved or denied, the application for payment from the fund.^[39] This subsection shortens the approval process and adds certainty to communications of the approval or denial.

Subsection (7) provides that prior to any disbursement, the eligible person or receiver is required to assign all right, title, and interest in the final judgment or order of restitution equal to the amount of such payment to the OFR.^[40]

Finally, subsection (8) provides the OFR will deem an application for payment from the fund abandoned if the applicant fails to timely complete the application as prescribed by commission rule. Under this provision, the time period is tolled during the pendency of an appeal or motion to vacate an arbitration award.^[41] This tolling is crucial given that time for filing a claim to the fund is a brief one year after the date of the judgment.

Payment From the Fund

Section 517.141 was amended to streamline the decision-making and payment process and increase the amounts recoverable under the fund.

Subsection (2) provides for disbursement from the fund in an amount equal to the lesser of $15,000 or the unsatisfied portion of the claimant’s final judgment or restitution order for actual or compensatory damages, excluding post-judgment interest, costs and attorneys’ fees. If the claimant is a specified adult or if a specified adult is a beneficial owner or beneficiary of the claimant, the maximum sum recoverable is $25,000. These amendments increased the previous $10,000 maximum amount on all claims to a new $15,000 maximum and provide for enhanced recovery for specified adults, who are defined as persons over 65 years of age, or vulnerable adults as defined in F.S. §415.102.^[42]

Subsection (3) increases the aggregate limit on claims against one entity or person from $100,000 to $250,000. If the total claims exceed the aggregate limit of $250,000, the office must prorate the payment to each claimant based upon the ratio that each claimant’s individual claim bears to the total claim filed. This amendment more than doubles the amount recoverable against one wrongdoer.^[43]

Subsection (4) provides that if at any time the balance of the fund is insufficient to satisfy a valid claim or portion thereof approved by the OFR, the OFR must satisfy the unpaid claim or portion of the valid claim as soon as a sufficient amount of money has been deposited into or transferred to the fund. If more than one unsatisfied claim is outstanding, the claims must be paid in the sequence in which claims were approved by final order of the OFR, as long as such final order is not subject to appeal or other pending proceeding.^[44]

Subsection (5) provides that all payments made from the fund must be made by the chief financial officer upon authorization by the OFR. The OFR must submit authorization within 30 days after the approval of an eligible person for payment from the fund. This provision greatly shortens the time period for payment to a claimant. The previous two-year payment waiting period prior to payment, and consideration of all potential claims provisions are entirely eliminated.^[45]

Subsections (6) through (8) concern the treatment of joint account holders, reimbursement for judgments overturned on appeal, and collateral or excess payment of judgments and are largely unchanged from the previous version of the fund.^[46]

Subsection (9) adds a provision that if a claimant knowingly and willfully files or causes to be filed an application, or documents in support of the application, any of which contain false, incomplete, or misleading information in any material aspect, the claimant forfeits all payments from the fund and that such conduct violates F.S. §517.301(1)(c).^[47] This provision is modeled after the NASAA Model Act.^[48]

Subsection (10) amends the provision replacing OFR with the Department of Financial Services (DFS), as the entity is authorized to institute legal proceedings to enforce compliance with the terms of the fund, to recover moneys owed to the fund, and to recover interest, costs, and attorneys’ fees in any action brought pursuant to this section in which DFS prevails.^[49]

Best Practices for Ensuring Fund Eligibility

With the proliferation of innovative securities fraud schemes in Florida, particularly those targeting retirees and the older population in our state, practitioners should be aware of this recently amended fund as a source of recovery for securities fraud victims. No longer does the fund require that the wrongdoer be registered in Florida as long as the violation occurs in Florida. Oftentimes, in particular with unregistered securities or securities dealers, the investment funds are gone and there is nothing to recover after a judgment is obtained against the fraudster. The fund now offers some relief to victims of securities fraud who might not otherwise have any recourse. It now covers confirmed arbitration awards where the respondents are defunct, or no assets can be found to satisfy the judgment. When representing victims of civil violations of FSIPA, practitioners should ensure that the final judgment, restitution award, or confirmed arbitration award contains a finding of a violation of F.S. §517.07 or F.S. §517.301 and that applications^[50] for payment from the fund are filed within one-year of eligibility. A proper and timely filing can help clients recover at least a portion of an unsatisfied securities fraud loss.

This column is submitted on behalf of the Business Law Section, Stephanie Lieb, chair, and Kathleen DiSanto, editor.