A plan by the National Association of Securities Dealers to help investors collect unpaid arbitration awards by allowing them to take brokerages to court is being met with strong criticism from investor advocates.

The proposal, announced late last month, is part of the NASD's response to a study last year by the

General Accounting Office

that found half of the investors who won awards against their financial advisors in arbitrations never were paid.

The change the NASD is now proposing was seen as significant legally. That's because as it is now, investors are blocked from suing their brokers or financial advisors in civil courts under agreements the financial firms typically require investors to sign. Instead, they must take their cases to arbitration. Those arbitration agreements have been upheld by numerous court rulings.

"By going to court, investors can obtain a preliminary judgment, such as an immediate asset freeze, that is not available in arbitration," Linda Fienberg, president of

NASD Dispute Resolution

, said in a statement. "Our reputation for fairness is based on making sure that cases are heard impartially, and that every effort is made to see that any damages a claimant wins will be paid."

But some investor advocates say the new plan is a hollow shell.

For one, they say, it applies only to companies that have been suspended by NASD or are out of business. And companies in those straits, they say, tend to have at least one thing in common -- no cash.

"If they're no longer in business, what's the point?" said Jonathan Kord Lagemann, a New York securities lawyer who frequently represents investors in arbitration disputes. "What are you going to attach? It's already gone. The cow's out of the barn."

Seth Lipner, president of investor lobbying group

Public Investors Arbitration Bar Association

, said the proposal will do almost nothing to help solve the arbitration award collection problem. More fundamental changes are needed to the way small brokerages operate, such as an increase in their minimum capital requirements and a greater legal liability for the firms that clear their trades, he said.

"What they're suggesting isn't going to make sure this isn't going to happen again," Lipner said. "What you have is this huge open wound, and the NASD saying we're going to cover this so no dirt gets in."

The new proposal comes after NASD began taking measures to counter the arbitration awards collection problem last year. In October, for example, it said it would

begin suspending firms that didn't certify that they've paid arbitration awards within 30 days. In addition, the

Securities and Exchange Commission

has worked with both the NASD and the

New York Stock Exchange

to develop warnings for investors.

The

warnings caution that investors may not be paid by brokerages that have gone out of business or declare bankruptcy even if they win arbitration or court judgments against the firms.

The SEC described some of its initiatives in a report to members of

Congress

in early January.

Reps. John Dingell, D-Mich., and Edward Markey, D-Mass., who sought the initial GAO report on arbitration awards released last June, have now asked the GAO to review the actions taken by the SEC and the exchanges on the issue.

"Please advise whether there have been any changes in the collection rate in the interim which would suggest the need for additional reforms," Dingell and Markey wrote on Jan. 17.