Apparently, some people still think it’s far too easy for brokers to wipe their records clean, particularly where customer dispute information is concerned. A story on SmartMoney today cited a study released by the Public Investors Arbitration Bar Association (PIABA) in September of last year that claims 98 percent of brokers seeking expungement in 2006 from an arbitrator got one. The majority (71 percent) of these expungements were granted without any hearing. PIABA’s study recommended that the SEC and FINRA halt such expungements all together.
FINRA says the survey isn't representative because it looked at just 2 percent of the cases of 2006. But that 2 percent represents all the cases settled between brokers and clients in which an expungement was requested. The Smart Money story concludes, “Don't give up doing your homework with BrokerCheck, but take it with a grain of salt. The best recommendation for a broker may still come from word of mouth.”
What the story doesn’t mention is the fact that, in the meantime, New York’s new Attorney General, Andrew Cuomo, has been intervening in court proceedings to prevent expungement of customer complaints recommended by arbitrators.
And FINRA (the Financial Industry Regulatory Authority) proposed a rule in mid-December that would require arbitrators to take some extra steps before recommending expungement of information from a broker’s “permanent” record. These steps include holding a recorded hearing by telephone (or in person), and providing a brief written explanation of the reasons for ordering expungement. In cases that have been settled, arbitrators would be required to review the settlement documents including amounts paid, as well as terms and conditions.
Brokers need to have some recourse for expungement. Some client complaints on broker records are frivolous, and sometimes firms ding brokers records with false information when they defect to another firm in order to make it harder for them to do business.
