Here's what securities lawyers overlooked in their expungement report

Leading expungement attorney challenges PIABA report claiming systematic abuse of the process for clearing brokers' records

Oct 17, 2019 @ 1:01 pm

By Dochtor D. Kennedy

The first sentence on the Public Investors Advocate Bar Association homepage states that "The PIABA Foundation ... provides unbiased investment education." I beg to differ.

It is nearly impossible to ignore the overwhelming amount of facts and evidence conveniently overlooked in the "study" released by the foundation Tuesday. Given that the group is comprised of "attorneys who specialize in representing investors," I cannot say that I am surprised.

• The alleged "study" implies that the drastic increase in the number of expungement cases from 2015 to 2018 is the result of advisers' manipulation, exploitation and abuse of the arbitration process.

— PIABA says nothing of the fact that in June 2015, Finra launched a multimillion dollar advertising campaign promoting BrokerCheck.

— PIABA also fails to mention the June 2016 amendment to Finra Rule 2210, which required the inclusion of a "readily apparent reference and hyperlink to BrokerCheck" on all professional profile pages and firm homepages.

• PIABA's contention that seeking $1 in monetary damages is evidence of corruption is laughable.

— Finra's Awards Online database shows that multiple PIABA attorneys have requested nominal monetary damages on no less than 40 occasions.

— Finra Rules 12900 and 13900 dictate the fees assessed against parties to arbitration. If Finra wants to charge higher fees, Finra has the authority to enact a rule change.

• Respondent broker-dealers not opposing expungement intuitively makes sense when considering the risk/reward of opposing such actions.

— What deserves the attention of PIABA and others are the instances where an attorney frequently represents the broker-dealer and concurrently represents advisers in actions against the same broker-dealer.

• The call for a warning to be displayed on BrokerCheck letting investors know that the information is unreliable and often false is one point upon which we agree.

• An independent outside investigation of the expungement process is also something with which we agree.

— Given the mounting evidence of inappropriate influence of arbitrators by Finra staff, we are confident that a thorough investigation would uncover many things. However, "false and/or fraudulent information" has never been part of any cases we have handled.

— Perhaps the investigation should look into the outrageously high rate at which investor claims are settled by broker-dealers.

• PIABA calls for the appointment of an investor protection advocate to be involved as a named party in every expungement proceeding.

— My firm, AdvisorLaw, thinks that all parties should have an advocate at all points in the process.

— Appointing an adviser advocate to represent the interests of the advisers prior to the broker-dealer settling the matter is equally important.

— Perhaps investors should be held accountable if the arbitrator finds that the investor's allegations are false, frivolous, unfounded or otherwise without merit. Assessing fees and costs against the investor in such situations would be appropriate.

In short, the PIABA Foundation compiled what is most accurately described as an unhinged manifesto. The manifesto was published under the guise of a "study."

The purpose behind the manifesto was, yet again, to sound alarm and incite public outrage at the notion that the falsely accused are given a forum through which they can clear their name.

Whether it's ironic or otherwise, a small army of PIABA attorneys displayed on PIABA's website engage in the exact practice that the PIABA manifesto deems abusive "and possibly fraudulent." My advice to PIABA is that they take a closer look at their own organization before trying to effect self-serving changes within Finra.

Dochtor D. Kennedy is president and founder of AdvisorLaw LLC.


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