top of page

Brokers Clearing Red Flags from Records an “Alarming” Rate

It has become all too easy for brokers to wipe the slate clean and clear their public records of black marks that could steer investors away.

The Financial Industry Regulatory Authority (Finra) publishes consumer complaints about brokers on a public database (BrokerCheck) that investors can use the check out their broker’s background. While that database is meant to expose bad behavior, a new study released by the Public Investors Arbitration Bar Association shows that bad behavior is all too often swept off the record.

Cleaning the slate is technically allowed: after a consumer dispute is settled, a broker has the right to ask an arbitrator to expunge the complaint from the public record. Finra requires a broker to meet one of three criteria to qualify for expungement:

The claim was “factually impossible or clearly erroneous”.

The claim was “false”.

The broker “was not involved” in the violation.

In spite of those standards, remarkably, the study found that from May 2009 through the end of 2011, 97% of all expungement requests were granted. And even more disturbing: one broker requested expungement 40 times…and it was granted 35 times.

Finra reminded arbitrators last week that “expungement is an extraordinary remedy”…but that extraordinary remedy has obviously turned into a routine practice when the record is cleared in nine out of ten requests.

According to the author of the study, “To say that ‘expungement’ of customer claims from broker records is a major investor protection problem is an understatement…What is supposed to be an extraordinary relief measure is now being sought and granted in roughly nine out of the ten settled cases that we studied”.

All together, from 2007 through 2011, 838 complaints were expunged from broker records.


bottom of page