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Stockbroker Fraud Not Dischargeable
It is a cornerstone of our nation's bankruptcy jurisprudence that the discharge of individual debt is reserved solely for the honest debtor. This encompasses rules that certain debts are non-dischargeable, notable among them debts obtained by fraud and other illegal acts.
Nevertheless, from time to time various lawbreakers still seek to manipulate the bankruptcy laws. One particular category encompasses stockbrokers brought up before stock market regulators on charges of fraud in connection with the buying or selling of securities, and then either settle for a sum certain with claimants or are found liable for damages and ordered to pay under an industry award or court decree.
Many of these avaricious types file for bankruptcy, and attempt to discharge what they owe under the allegation that the settlement or award is an ordinary debt. More often than not, the defrauded customer/creditor has had to resort to the expensive and time-consuming process of replicating in the bankruptcy court the original fraud case tried before the stock exchange regulators. Most disturbing, under the then-existing regime, there was no guarantee that a stockbroker's debt arising from wrongdoing would be held to be non-dischargeable.
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