Expungement editorial was misleading

The editorial “Set the bar high for expungements” (InvestmentNews, Oct. 28) discusses the recent spate of expungements during arbitrations.

The conclusion seems to be a bit disingenuous.

The editorial starts out with a statement that can’t be substantiated: “With ordinary investors relying increasingly on Finra’s online database, BrokerCheck …”

Actually, the Financial Industry Regulatory Authority Inc. can’t tell us how many investors actually use the system. It is anonymous.

My own estimation is that it is used more by Public Investors Arbitration Bar Association attorneys looking to see who they can file claims against, HR directors looking at new hires and headhunters looking for heads to hunt. But no one can actually say how many investors are using the system.

And in reality, how many people get their brokers from the yellow pages? Usually, it is a friend of a friend, a relative or a neighbor who is recommending a broker.

It is doubtful that many people then go ahead and look for that broker on BrokerCheck, even if they know that BrokerCheck exists.

Can we really rely on the statistics from any organization whose members’ sole purpose is to sue brokers? And even if we do rely on them, how many of the “89%” of expungements are granted by all-public panels?

It has been a couple of years since Finra began allowing arbitrations with all-public panels, which was lobbied for by PIABA and granted by Finra. I doubt that the expungement totals would be as high if the panels were still industry panels.

As an industry arbitrator, I can say that in many cases, industry arbitrators are harder on wayward brokers than public panelists.

The way that the PIABA attorneys operate is to use a shotgun aimed at a brokerage firm and name anyone that they can in hopes of forcing a settlement. That settlement is often negotiated by the firm without even talking to the named broker(s), many of whom had never even met the complaining client or were even at the firm when that client had an account there.

A perfect example occurred at a small firm in the Southwest. A complaint was filed against a representative for an event that occurred when he was with a prior firm.

After investigating, it was discovered that the representative had been gone from that firm for 18 years, and Finra’s statute of limitations is six years.

The firm called the client’s home. His wife answered and said that he was in a nursing home with severe dementia and to disregard the complaint.

Well that would be fine except that the complaint had to go on the rep’s record. Should this complaint not be expunged?

The PIABA attorney names someone who wasn’t there, and then PIABA complains that the claim was expunged.

Additionally, BrokerCheck in- cludes claims that have never been adjudicated or even settled. These are claims that were never followed up by the client or specifically abandoned by the client.

To my mind, those entries in BrokerCheck are tantamount to spreading rumors and have no place on someone’s official record. So there should be a way of expunging that record.

However, with that said, there should also be a review process within Finra to get rid of brokers or any registered people who have more than a certain number of qualified complaints or regulatory sanctions against them. Along with that sort of review, there should be a statute of limitations on entries in BrokerCheck.

If an entry is more than X number of years old and there are no intervening claims, there should be a way of letting it fall off the record.

The system is complex and isn’t perfect. And though the purpose is to make sure that the investor is protected, we must also consider the fairness to the registered people.

We still live in America, and we are innocent until proven guilty. A claim by someone doesn’t make one guilty, and that claim shouldn’t follow an individual around the rest of his or her professional life if it is impossible or unproven.

David M. Sobel

Executive vice president

and chief compliance officer

Abel/Noser Corp.

New York

Related Topics: Letters To The Editor