Wall Street Journal (October 16, 2013 6:01 pm) - Stockbrokers are being routinely allowed to scrub some customer complaints from their public records, leaving investors in the dark about potentially troubled advisers, according to a study of more than 1,600 arbitration cases.

Brokers asked to remove customer disputes from their records in 1,625 arbitration cases filed from 2007 through 2011, according to a report by the Public Investors Arbitration Bar Association, an association of securities lawyers. Arbitrators approved removal requests in more than 90% of the 629 cases that settled. In the other cases, which went to an arbitration hearing, almost half the requests to clean records were granted. During the period, there were 17,635 arbitration cases overall, the bar association report shows.

The systematic polishing of records raises a fresh concern about the oversight of brokers by the Financial Industry Regulatory Authority, a Wall Street self-regulator. A page-one article by The Wall Street Journal earlier this month disclosed how some groups of brokers have migrated from one problem firm to another, often leaving unpaid arbitration awards in their wake.

Finra has tweaked "expungement" rules a number of times in recent years, but the report said that, for settled arbitration cases, "Finra's attempts to mandate narrow grounds for granting expungement relief…have failed."

Jason Doss, incoming president of the bar association, said: "Very simply, Finra needs to take more action to protect investors, and we have the hard data to prove that point."

A Finra spokeswoman said the group issued "further guidance" to arbitrators last week on dealing with such expungement requests and "the rules and processes could be applied with more rigor" in cases that are settled. Finra is "reviewing its rules…and will consider changes," the spokeswoman said.

A spokesman for the Securities and Exchange Commission, which oversees Finra, declined to comment.

Customers opening brokerage accounts in most cases must agree to settle disputes using Finra's arbitration system, giving up their right to go to court. Finra encourages investors to vet brokers using its "BrokerCheck" database—a public record showing arbitration claims, criminal charges, bankruptcies and other possible red flags.

The new research suggests investors using BrokerCheck risk being "led to believe a broker has a clean disciplinary record, when that is far from true," said Rachel Weintraub, legislative director and senior counsel at the Consumer Federation of America. "This leaves investors vulnerable to fraud and abuse."

The problem of repeat customer disputes appears focused on a small minority of troubled brokers, according to a database compiled by the Journal of the records of more than 558,000 brokers.

Just more than 30,000—about 5%—of these brokers reported at least one customer complaint at the time the data were collected, by using public-records requests, earlier this year. Reporting three or more customer complaints were 3,389 brokers, and 162 of those had 10 or more complaints, according to the Journal analysis.

Brokers can apply to remove a customer dispute from their records. Finra rules require such expungement requests to be approved by its arbitrators and confirmed by federal courts.

Finra has said this ability to wipe the slate clean should be an "extraordinary" measure. Its rules say expungement should be allowed only if the customer claim is false, factually impossible, clearly wrong or doesn't involve the broker.

The report could fuel concerns that firms are exploiting loopholes in the rules to cleanse employees' public profiles, in some instances enabling many complaints to vanish from a broker's record. "There were a number of cases we looked at where the broker was requesting expungement multiple times," said Scott Ilgenfritz, president of the bar association.

The proportion of brokers' requests for expungement granted in settled cases increased each year over the five-year period studied, from 88% in 2007 to 97.8% in 2011, according to the new study.

The number of expungement requests increased after Finra changed its rules in May 2009 to require brokers to disclose arbitration claims involving them even if they weren't named as a party to the case. Since that change, firms offering to settle claims often require investors to agree they won't oppose an expungement request by the broker concerned as a condition of the deal, lawyers say.

"Almost every time you settle, broker-dealers want an agreement that you won't oppose a request to get [the case] expunged," said Bruce Oakes, a partner at St. Louis-based law firm Oakes & Fosher LLC. He said expungement has gone from being a means to correct genuine errors into a "tool for brokers and their firms that they use to keep their records clean."

Terry Weiss, a lawyer at Greenberg Traurig LLP who represents brokers and brokerage firms, said expungement requests were being granted in only a "relatively small" proportion of the overall number of cases. "The arbitration process is fair to investors, and the BrokerCheck system accurately depicts the background information that is relevant to investors," he said.

The demand for expungement "will likely increase even more dramatically" if the SEC approves a proposed rule change passed by Finra's board last December, the bar association's report said. The proposal would allow brokers who are required to disclose a complaint that doesn't name them to ask for expungement without involving their firm or the customer. Finra hasn't yet sent the proposal to the SEC. The Finra spokeswoman said the proposed rule would make the process more efficient but "not easier."

Write to Jean Eaglesham at jean.eaglesham@wsj.com and Rob Barry at rob.barry@wsj.com