|October 17, 2013|
Previously published on October 17, 2013
In the midst of its annual meeting in Orlando, Florida, the Public Investors Arbitration Bar Association (PIABA) called a press conference to seek further restrictions in the recently-amended FINRA rules governing expungement of broker data in the FINRA and State managed broker database, the Central Registration Depository (CRD).
PIABA claims the additional reform is needed even though fewer than 6% of cases brought during the time period PIABA selected resulted in an award of expungement, according to a report issued by PIABA. Indeed, PIABA’s analysis focuses on cases handled between 2007 and 2011, coinciding with the financial crisis and a time period when investors’ lawyers and PIABA membership brought a large number of product-based claims where individual broker misconduct may not have been directly at issue, but where an involved individual broker’s CRD report might suggest otherwise.
Although PIABA is critical of the current expungement process, its conclusions admittedly do not consider the possibility that arbitrators (who are selected by the parties) are correctly applying the FINRA expungement rules and arriving at the right results substantively. Further, although PIABA concludes that investors who settle their claims must somehow be in cahoots with the securities industry in a tainted process, they acknowledge as they must that there is no data conclusively making this link. Indeed, it may well be that investors who do not oppose a post-settlement expungement have nothing but good intentions and see no reason to have a settlement needlessly blemish the permanent record of an otherwise good broker.
Finally, to the extent the report criticizes FINRA’s role in the expungement process, it appears to overlook that FINRA may oppose an otherwise successful expungement in a court of law. If there is a basis to reject an expungement FINRA can make that voice heard.
Notwithstanding PIABA’s protestations, the current rules are directed at achieving the sought-after goals, although appropriate attention must be given to those cases where brokers’ publicly available records needlessly contain blemishes due to arbitration cases that should not have been pursued in the first place.
PIABA’s press release and report are available online.