Grassley/Reed Letter to FINRA Cites PIABA Study Showing Stockbroker
Expungement Levels At Almost 97 Percent in Settled Cases When Requested by Broker

lifehealth.com (December 20, 2013) – Jason Doss, president of the Public Investors Arbitration Bar Association (PIABA), issued the following statement Wednesday:

“We commend Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) for taking bi-partisan action to protect investors by calling on the Financial Industry Regulatory Authority (FINRA) to clarify and strengthen standards for expungement of investor complaints against financial professionals. (1.usa.gov/18Rb7xt). Senator Edward Markey (D-MA) has also expressed concern with FINRA’s arbitration process and the integrity of the FINRA BrokerCheck system.

Through its arbitration forum, FINRA provides its financial professionals and their firms a process to request having customer complaints permanently removed (i.e. expunged) from their public regulatory record. FINRA arbitrators decide whether to recommend granting these expungement requests. Pursuant to FINRA’s rules, expungement is supposed to be an extraordinary remedy that should only be granted by arbitrators when the information to be expunged has ‘no meaningful regulatory or investor protection value.’

Clearly the system is broken given that FINRA arbitrators have been granting expungement requests after settlements almost 97 percent of the time.

Access to Information key

Consumers need and deserve to have access to all relevant information when selecting a financial professional with whom to entrust their life savings. We look forward to the continued efforts by lawmakers in cooperation with FINRA to improve the accuracy and transparency of the information provided to consumers from the FINRA BrokerCheck database, which serves important investor protection and regulatory functions.

PIABA also calls on state regulators to help improve the quality of information provided to investors by taking a more active role in the expungement process.

PIABA is on the record as supporting an end to the use of mandatory pre-dispute arbitration clauses in consumer contracts with the securities industry. The problems identified in the expungement study provide additional reasons that consumers should be given the choice as to whether they want to resolve disputes with financial professional in arbitration or in court.

PIABA is pleased that Senators Grassley and Reed called on FINRA to address several recommendations that were made as part of our expungement study. PIABA’s mission is to protect and educate investors and to that end, we look forward to working with these and other legislators and regulators to arrive at solutions to the issues with the arbitration process and transparency of information provided to investors.”

The PIABA expungement report recommended the following:

Changes should be made with respect to the content and thoroughness of the training arbitrators are required to complete before they can rule upon a motion seeking expungement relief. Changes should also be made with respect to the procedures applicable to motions seeking expungement relief. FINRA has very recently undertaken steps to better educate arbitrators concerning their roles in the expungement process and the critical importance of accurate customer claims information with respect to investor protection. FINRA’s arbitrator education efforts need to go further.

  • FINRA should propose a rule change prohibiting financial advisors and their firms from conditioning a settlement upon an investor’s agreement not to oppose expungement.
  • Finally, for FINRA to fulfill its mission of investor protection, the procedures applicable to motions for expungement relief need to be changed. FINRA needs to review and critically assess all motions for expungement relief, particularly those made in cases resolved by settlement.
  • A proposed rule change should include the requirement that the hearing on any motion for expungement relief be scheduled no sooner than 60 days after service of the motion on the customer and FINRA. In cases resolved by settlement, FINRA should require respondents to provide to FINRA the settlement agreement along with the motion for expungement relief.

Upon receipt of any motion for expungement relief and any settlement agreement, FINRA should provide those documents to the securities commissioner in the state in which the case was filed. The amended procedures should provide for FINRA and the designee of the state securities commissioner to have the right to appear at the hearing on the motion for expungement relief and to oppose expungement relief when such opposition is appropriate.

A copy of the PIABA study can be found at here.

A copy of testimony provided to the U.S. Senate Committee on the Judiciary for its December 17, 2013 hearing on the Federal Arbitration Act can be found at piaba.org/piaba-newsroom/congressional-testimony-committee-judiciary-statment-piabacommittees-review-federal-a.

A copy of the October 25, 2013 letter from Senator Edward Markey to U.S. Securities and Exchange Commission Chair Mary Jo White regarding concerns with FINRA’s BrokerCheck system and arbitration process can be found at www.markey.senate.gov/documents/2013-10-25_SEC.pdf.

ABOUT PIABA

Public Investors Arbitration Bar Association is an international, not-for-profit, voluntary bar association of lawyers who represent claimants in securities and commodities arbitration proceedings and securities litigation. The mission of PIABA is to promote the interests of the public investor in securities and commodities arbitration, by seeking to protect such investors from abuses in the arbitration process, by seeking to make securities arbitration as just and fair as systemically possible, and by educating investors concerning their rights. For more information, go to www.piaba.org.