thetrustadvisor.com (posted by Steven Maimes January 26, 2014) -- The brokerage industry's self-regulator plans to seek a ban on settlements of damage claims by clients against brokers that include a promise by the client not to oppose erasing the case from the broker's public record.

Such a condition now is often included in settlements of claims filed in the Financial Industry Regulatory Authority Inc.'s arbitration forum. The practice was recently criticized by a group for lawyers who represent investors in securities disputes. The group said it makes it too easy for brokers who caused their clients losses or sold them unsuitable securities to get cases expunged from their records.

In a letter made public Friday, Richard Ketchum, Finra's chairman and chief executive, said, "We are presently developing a rule change that would prohibit the practice on an investor's agreement not to oppose expungement."

The agency is "extremely concerned over the inordinately high percentage of expungement relief granted by arbitrators in settled cases," Mr. Ketchum said. His letter, dated Jan. 6, was to U.S. senators Jack Reed (D., R.I.)and Chuck Grassley (R., Iowa), who had pressed for Finra to address the issue.

Finra had previously said it was considering such a rule change but Ketchum's letter was the first word that it was actually in the works. In a statement Friday, when they disclosed the letter, Senators Reed and Grassley said: "Finra was responsive to our inquiry and it appears the organization is taking this problem seriously."

In October, the Public Investors Arbitration Bar Association, an association of securities lawyers, said it found a high number of arbitration cases resolved by settlement where expungement relief was subsequently granted.

Scott Ilgenfritz, the president of PIABA said at the time the number of expungements indicate "that the current expungement procedures are seriously flawed." Between 2007 and 2009, 17,635 arbitration cases were filed; fewer than 850 expungements were ordered by courts, he wrote. Since April 2004, Finra opposed expungement in approximately 35 cases, he wrote.

PIABA recommended that Finra change the rules regarding bargaining for settlement or conditioning a settlement upon an investor's agreement to not oppose expungement or an agreement to expungement.

A spokeswoman for Finra declined to comment beyond Mr. Ketchum's letter.