PIABA seeks more Capitol Hill influence in 2014

Lawyers plan to lobby Congress to curb mandatory arbitration and regulators' readiness to clear brokers' names

Dec 27, 2013 @ 11:28 am

By Mark Schoeff Jr.

piaba, brokers, expungement, records, finra, sec
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A group of lawyers that represents investors in claims against brokers wants to have more influence in the halls of Congress.

“We're taking a more active role in trying to impact legislation,” said Jason Doss, president of the Public Investors Arbitration Bar Association. “No other organization has the practical experience to talk about the real-life impact on investors when they're given bad investment advice.”

On March 14, PIABA will hold its first ever Capitol Hill Day. The initiative will involve PIABA members meeting with their representatives and senators to highlight measures and issues at the top of the group's agenda, such as a bill that would end mandatory arbitration clauses in brokerage contracts with customers.

Another issue that the group is trying to put on the radar of lawmakers is the so-called expungement process, or the method by which brokers can get wrongdoing cleared from their records in a database run by the Financial Industry Regulatory Authority Inc.

A PIABA study released in October found that expungement was granted more than 90% of the time between May 2007 and December 2011 when it was requested by brokers as part of a stipulated award or settlement.

That report has caught the attention of three senators worried about investor protection.

In the latest reaction, Sen. Jack Reed, D-R.I., and Sen. Charles Grassley, R-Ia., wrote a Dec. 16 letter to Finra chairman and chief executive Rick Ketchum asking the broker-dealer regulator to respond to the five recommendations in the PIABA letter for improving the expungement process.

“A 90% figure sticks out like a sore thumb,” Mr. Grassley said in an interview. “It seems to me that this is an incredibly high percentage. It's almost willy-nilly.”

In October, Sen. Edward Markey, D-Mass., also sent a letter to Finra expressing concerns about expungement.

“[Expungement] is getting a much closer look now that the PIABA study has come out and shown how frequently customer complaints are being expunged,” said Christine Lazaro, chair of the PIABA legislation committee and director of the Securities Arbitration Clinic at St. John's University School of Law.

In a Nov. 13 letter responding to Mr. Markey, Mr. Ketchum wrote that expungement was not requested in the large majority of the 18,000 arbitration cases initiated during the time period of the PIABA study. Over that same time, Finra executed fewer than 850 court orders for expungement that confirmed arbitrator recommendations. Finra also has recently issued guidance to its more than 6,000 arbitrators on the appropriate use of expungement.

In their letter to Mr. Ketchum, Sens. Reed and Grassley asked him whether Finra required congressional authority to improve the expungement process. That's a step PIABA also is considering.

“PIABA is looking into whether legislation would provide the best solution to expungement,” said Mr. Doss, owner of an eponymous firm. “We're hopeful that if there is such a solution, we'll have it ready by the March Capitol Hill Day.”

But an expungement bill may not be necessary, Mr. Grassley said.

“A lot of times, if our oversight works…it doesn't always take legislation to change things,” Mr. Grassley said. “Right now, I'm going to give [Finra] the benefit of the doubt.”


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