October 15, 2019

PIABA report charges systematic abuse of the procedure for clearing brokers' disciplinary records.

Securities lawyers representing investors released a report Tuesday showing that the arbitration process by which brokers can clear their records of customer disputes is rife with abuse and called on Finra to halt such proceedings.

The study by the Public Investors Arbitration Bar Association Foundation said the so-called expungement process "is being systematically gamed, exploited and abused with one-sided hearings, manipulation of arbitrator selection, deletion of significant customer complaints, and abusive (and possibly fraudulent) conduct to such an extent that it must be frozen until it can be repaired."

. . .

The report recommends that Finra immediately halt all expungement proceedings, place a moratorium on expungement-only cases and commence an outside investigation of the expungement process. It also says Finra should place a warning on BrokerCheck indicating that the system may be missing key information. Finally, the Securities and Exchange Commission, which oversees Finra, or Finra itself should appoint an investor protection advocate who would be a party in every proceeding.

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A former state regulator agreed with the thrust of the PIABA report.

"It is my opinion, and largely the opinion of state regulators, that the expungement process is overused and abused," said Laura Posner, a partner at Cohen Milstein Sellers & Toll and the former New Jersey securities administrator. "I don't see any reason for expungement to exist outside a case of the misnaming of a party or [another] mistake."

The complete article can be viewed here.