InvestmentNews (January 23, 2020) - A Finra arbitrator ruled that a customer dispute from 2004 should be removed from his record
Ron Carson succeeded in removing a customer dispute from his record, but the decision by a Finra arbitrator illustrates the problems with expungement, investor attorneys asserted.
Earlier this week, a Financial Industry Regulatory Authority Inc. arbitrator granted Mr. Carson’s request for the expungement of a customer dispute from 2004 over mutual funds purchased from Mr. Carson when he was with LPL Financial. The customer claimed that they were unsuitable and not properly diversified and requested $20,000 in damages.
The arbitrator, Philip J. Glick, held that the incident should be deleted from Mr. Carson’s record because the claim was “factually impossible or clearly erroneous…and is false.” In his reasoning for the decision, the arbitrator noted that the complaint was withdrawn, the customer was not paid any money and there was no settlement.
A lawyer who represents investors in arbitration cases is concerned that Mr. Carson’s win occurred after a hearing in which neither the customer nor LPL participated after being invited to attend.
“I don’t have confidence in this [award] because nobody showed up to oppose it,” said Lisa Braganca, principal at Braganca Law. “If the arbitrator only heard one side of the story, why would he rule against the broker? That is the problem with this process.”
Ms. Braganca was co-author of a Public Investors Arbitration Bar Association Foundation study last year that asserted that Finra arbitrators grant expungement far too often and that it is undermining BrokerCheck, the online database maintained by Finra that contains background information on registered representatives.
The study’s other author, Jason Doss, owner of the Doss Firm, also criticized Mr. Carson’s expungement. He said the customer was notified of Mr. Carson’s request on Dec. 11, and the hearing was conducted Jan. 6, giving the customer little time to respond.
Mr. Doss said that Mr. Carson’s request for $1 in damages assured that the hearing would be conducted by only one arbitrator rather than the usual three. He also asserted that given the lack of detail in the arbitration award, it was difficult to determine the merits of the case.
“This is a good example of what’s wrong with the expungement process,” Mr. Doss said. “There’s no evidence [expungement] was or was not warranted.”
But Andrew Stoltmann, a Chicago securities attorney and vocal critic of expungement, said that in Mr. Carson’s case, the fact that the complaint was withdrawn and that the customer was not paid any money justified the outcome.
“I can’t take offense or umbrage to an arbitrator granting expungement in this case,” Mr. Stoltmann said. “That’s one of the narrow circumstances where an argument could be made” in favor of clearing an incident from a broker’s record.
A Finra spokeswoman said the organization declines to comment on individual arbitration cases. In October, the Finra board approved sending to the Securities and Exchange Commission an arbitration reform rule proposal that would curtail claims for $1 in damages.
On another of Mr. Carson’s expungement requests, the award document notes that the Finra Office of Dispute Resolution determined last April that a 2002 customer dispute over “failure to carry out an investment plan” was not eligible for arbitration because “it arises from a previous adverse award.” In that case, the claimant was granted $50,000 in damages.
Neither a spokesman for Mr. Carson nor his lawyer was immediately available for comment.
Mr. Carson, who is based in Omaha, Neb., was affiliated with LPL from 1989 to 2017 and then was with Cetera Advisor Networks from 2017 until early 2019, according to his BrokerCheck profile. He is the founder of Carson Group, a wealth management and adviser coaching firm with more than $11 billion in assets under management.