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October 15, 2019 at 03:45 PM
The Financial Industry Regulatory Authority’s BrokerCheck is unreliable as it’s being “systematically gamed, exploited and abused with one-sided hearings, manipulation of arbitrator selection, and deletion of significant customer complaints,” according to a just-released report by the Public Investors Advocate Bar Association.
PIABA’s report, which analyzes the handling of 1,078 FINRA arbitration cases from 2015 to 2018 in which brokers sought to expunge investor complaints from their record, calls for FINRA to freeze all pending expungements until “a complete independent investigation is conducted.”
The report states that there’s been a rise of more than 1,000% in the number of investor complaints challenged in the expungement process. PIABA warns that investors can no longer rely on the BrokerCheck disclosure system to investigate the brokers’ backgrounds.
PIABA is an association of lawyers who represent investors in disputes with the securities industry. “What is supposed to be an extraordinary relief measure is now being sought and granted in roughly nine out of the 10 settled cases that we studied,” Scott Ilgenfritz, the group’s president at the time, said in 2013.
Jason Doss, president of PIABA Foundation and co-author of the report, stated Tuesday: “Take your worst fears about a mandatory arbitration system run by the industry tasked with protecting investors, multiply that by 10 and you are in the territory where these outrageous abuses of the broker expungement process are today.”
Based on the results of the PIABA study, he said, “BrokerCheck can no longer be considered a reliable tool for investors to use when researching the background of brokers.”
Since 2015, there has been an explosive increase in the filing of “expungement-only” cases, which rose 924% from 59 in 2015 to 545 in 2018. An expungement-only case is an arbitration initiated by a broker against their own member firm solely for the purpose of seeking expungement, without naming the customer, PIABA explained.
The 2,194 customer complaints contained in 1,078 arbitration proceedings that brokers requested be expunged increased by 1016% from 102 in 2015 to 1,026 in 2018.
The report pointed to the rise in “$1.00 expungement cases,” which PIABA argues “is evidence of the corruption of the broker expungement process.”
Brokers and brokerage firms, PIABA states, “have been gaming FINRA’s arbitration system by falsely including a bogus $1.00 demand in damages to reduce the number of arbitrators reviewing expungement requests and to make it cheaper for brokers to get customer complaints expunged.”
From 2015 to 2018, the number of cases in which nominal damages were requested in the broker’s statement of claim increased from six to 456 cases, the report states.
