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Regulation and Compliance > Federal Regulation > FINRA

Lawyers Enlist State Regulators in Fight to Stop Brokers From Erasing Complaints

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What You Need to Know

  • Brokers' requests to expunge client complaints from their public records are granted at an astonishing rate, the lawyers' group PIABA argues.
  • PIABA and state regulators say expungements should be granted only in extraordinary circumstances.
  • A new FINRA rule allows state securities regulators to participate in expungement arbitration and oppose requests.

The Public Investors Advocate Bar Association is expanding its pro bono program to represent investors in expungement arbitration in opposition to what it says is an astonishing rate of successful requests by brokers to erase client complaints from public records. 

PIABA, a group of lawyers that represent investors in disputes with the securities industry, will also offer training to state regulators, who have new authority in the expungement arbitration process after a recent rule change by the Financial Industry Regulatory Authority.

Requests to expunge records are successful in 90% of “straight-in” cases of a broker filing arbitration against their own firm, according to PIABA’s analysis of more than eight years’ worth of FINRA arbitration awards. In 92% of cases from January 2019 to Aug. 31, 2023, requests went unchallenged by the brokerage firm. 

In addition to expanding its pro bono representation of investors, PIABA on Tuesday announced a partnership with the Alabama Securities Commission on a new training program for state securities regulators to more effectively participate in FINRA arbitration.

The program is meant to support a recently introduced FINRA rule change that allows state securities regulators to participate in expungement arbitration and oppose requests. 

The goal is to make expungement requests only successful in extraordinary circumstances, said Jason Doss, founding director of the PIABA Foundation. 

“The most effective way to reduce the rate of expungements being granted is to stop the practice of allowing arbitration to decide expungement based on a one-sided presentation of evidence by the broker,” Doss said. 

The new FINRA rules, which went into effect Oct. 16, require that expungement requests be decided by a panel of three people who have received expungement training. Previously, only a single arbitrator could make the decision to remove customer complaints from a broker’s record. 

The new rules also include a time limit on when brokers can request expungement and require state securities regulators to be notified of all expungement requests earlier in the process. 

While the rules give more state regulators more time to participate, the time windows and deadlines can still be short, said Joseph Borg, the former director of the Alabama Securities Commission. The new arbitration expungement training program will help state regulators, who have traditionally not participated in FINRA arbitration, to understand the new rules and procedures, he said. 

“Regulators have limited resources and limited time, so we expect to have much discussion, collaboration and coordination with our fellow state regulators as we learn the ropes of the new FINRA rules,” Borg said. “All of this is in furtherance of our core mission to inform and protect investors nationwide.” 

Regulators from numerous states are already planning to join the training program in Alabama in November, Borg added. 

Broker records are used by state securities regulators for licensing and monitoring of broker activity, and retail investors are encouraged to “do their homework” before investing their money, Borg said, adding that investors should be able to trust that information available on a broker is an accurate reflection of their history. 

“From the investor’s point of view, a historical point of view and the regulator’s point of view, this information is very, very important,” he said. 


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