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Brokers Still Gaming BrokerCheck With New Tactics: PIABA

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What You Need to Know

  • The customer is not involved with straight-in expungement requests.
  • Arbitrators have continued to grant expungement requests 90% of the time, PIABA's Doss said.
  • The SEC will decide by May 28 on FINRA's latest expungement rule; PIABA says it won't fix the problems with the arbitration process.

Brokers have another tactic to get customer complaints expunged from the Financial Industry Regulatory Authority’s BrokerCheck, according to the Public Investors Advocate Bar Association, which says these brokers are gaming the system.

In a “straight-in expungement,” the broker files an arbitration case against their current or former brokerage firm requesting the expungement of a customer complaint. The customer is not made aware of the request, nor are state regulators.

Between August 2019 and October 2020, FINRA arbitrators granted 700 straight-in expungements, according to new research by PIABA, which is a group for lawyers who represent investors in disputes against brokers, and the PIABA Foundation.

The rise of this strategy began around 2014 or 2015, the lawyers group found, saying the number of expungement requests awarded has risen 1,000% since 2015.

Straight-in expungements are the latest example of how FINRA’s expungement process shuts out investors and state regulators, the lawyers say.

PIABA’s newest report “shows that over the last decade, very little has changed in the expungement process to protect investors who rely on BrokerCheck to research the backgrounds of brokers before they select them to manage their life savings,” Jason Doss, president of the PIABA Foundation, told reporters Tuesday. “There’s also been little to protect state regulators who rely on the complaint history of brokers to perform their regulator functions, such as whether to license a particular broker in their state.”

A new FINRA plan to create a roster of arbitrators with enhanced training and experience to decide whether to expunge customer complaints, which the Securities and Exchange Commission is set to approve — or not — by May 28, will not remedy the problem, PIABA maintains. FINRA sent its proposal to the SEC last September.

Create an Independent Investor Advocate

FINRA’s proposed rule changes, Doss said, “will not reduce, ultimately, the unacceptable high rate that arbitrators are granting expungement requests.”

PIABA, Doss said, believes that the step of embedding an independent investor advocate into expungement arbitrations “with the power to oppose expungement requests needs to be taken now or we’re going to be back here in another five years or seven years talking about the same findings.”

Doss stated that “the rubber stamping of arbitrators for expungement requests continues,” as “arbitrators have continued to grant expungement 90% of the time when it’s supposed to be extraordinary relief.”

PIABA’s previous study, released in 2019, found that beginning in 2014 to 2015, brokers “changed tactics from requesting expungement in underlying customer arbitrations to waiting until the conclusion of customers’ dispute” and filing a straight-in expungement request.

FINRA Responds

A FINRA spokesperson told ThinkAdvisor on Tuesday that FINRA’s “current rule proposal addresses many of the concerns raised by PIABA.”

In particular, the spokesperson said, FINRA’s plan “provides additional notification to state securities regulators. It also makes important changes to the expungement process such as the random selection of three arbitrators, establishing shorter timeframes to bring expungement claims, and requiring specially trained and qualified arbitrators in most expungement contexts.”

FINRA, the spokesperson said, is “committed to working collaboratively with NASAA [the state regulators' group] and other stakeholders to continue to improve the expungement process.”

PIABA argues, however, that FINRA’s current proposed plan to require “a panel of three randomly selected arbitrators from a special roster will not significantly reduce the percentage of expungement requests” that are granted.

Why? “Because the proposed rule will still allow brokers to present unopposed expungement requests. More training will not work. As the data conclusively demonstrates, since FINRA implemented enhanced expungement training in 2014, expungements are still being granted approximately 90% of the time,” PIABA states.

PIABA maintains that “the data strongly indicates that arbitrators are granting expungement requests 90% of the time because they are being provided with one-sided presentations about the merits of the customer complaints, not because of lack of training.”


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