Brokers Purging Permanent Record

An eye-opening recent report brings unsettling news that alleged misconduct or fraud by stockbrokers is routinely being erased from the permanent record kept by securities industry watchdog, the Financial Industry Regulatory Association (FINRA). As we’ve written about numerous times, FINRA’s very helpful online searchable database, BrokerCheck, strives to protect investors against shady brokers by collecting comprehensive data on all disciplinary action taken against them. Unfortunately, the usefulness of BrokerCheck is apparently being seriously undermined by the extraordinarily high rate of expungement, according to the report by the Public Investors Arbitration Association (PIABA).

Shockingly, 96.9% of expungement demands by brokers who had allegedly run afoul of FINRA were granted.

The Exception Becomes the Rule in FINRA Expungement

Expungement of customer claims against brokers is intended to be exceptional, offering blameless brokers whose alleged offenses went unproven in arbitration to clean up their records and start fresh. It certainly appears, however, from the findings in this report, that brokers are instead systematically abusing this process and that FINRA is enabling them to do it.

 By Alan Cleaver. Creative Commons.

By Alan Cleaver. Creative Commons.

While brokers have every right to eliminate false or fraudulent claims against them and resume their careers, when the process of expungement suffers abuse, it is ordinary investors who lose out the most. Without a complete and accessible accounting of a broker’s past behavior, investors have no way to conduct their own background check on prospective or current stockbrokers. Instead, if they don’t know the broker personally or have a recommendation from a trusted source, they’re forced to rely on the reputation of the broker’s firm or, even worse, what he or she says about their history or past performance.

 

Investors Have a Right to the Complete Record

Making expungement too easy for brokers not only sends the wrong message to brokers considering crossing the line into misconduct or fraud, it also diminishes an important protection for investors who rely so heavily on strangers (even if they are accredited, well-trained, and professional financial advisors) for investing: the right to complete and accurate information.

If you or someone you know has been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation at 1-855-462-3330.