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Study: FINRA Grants Expungement to Most Brokers in Arbitration; FINRA Responds

The Public Investors Arbitration Bar Association (PIABA) released a study, finding that after arbitration, most stockbrokers accused of wrongdoing who request expungement are granted the relief by FINRA's arbitrators.

When a broker is granted expungement relief, FINRA removes all records of a specific complaint or complaints from the particular broker's public regulatory record, which includes the FINRA BrokerCheck system.

According to PIABA, the 1600-case study over the 2007-2011 period turned out an "alarmingly high" percentage of arbitration cases resolved by an award that included expungement relief, finding that in roughly nine of 10 settled cases, expungement is granted.

The numbers, interestingly enough, became more skewed over the most recent cases—expungement relief was granted 96.9 percent of the time between May 2009 and December 2011 (the study concluded on December 31, 2011).

Whereas PIABA centered its study around the percentage of expungements granted for only those cases in which expungement was actually requested, FINRA greatly broadened its angle, finding that 838 orders from expungement in five years over a total of 17,635 filed disputes represents a 5% expungement rate.

FINRA responded to the PIABA study by noting that the recent increase in expungement is "largely attributable" to a Form U4 and U5 change in 2009 that increased the reporting requirements related to customer claims against brokers and, accordingly, an increase in expungement requests by brokers.

For a proactive investor whose goal is thorough research of a potential broker or financial advisor, PIABA's results suggest BrokerCheck should not be the researcher's sole source. Notably expungement does not delete the existence of the arbitration award itself which can still be found on FINRA Dispute Resolution's online depositry of arbitration awards and searched by a broker's name.

Investors may also benefit from augmenting the BrokerCheck results with incidental—yet credible—information from elsewhere on the internet, such as established newspapers and similar sources, financial or securities focused websites or niche blogs and other regulatory agency websites, such as the SEC's Investment Adviser Search or the North American Securities Administrators Association (NASAA)'s listing of state regulators and databases. Lastly, and most importantly, investors can directly ask their broker whether they have any expunged complaints.

If you have invested with a broker or financial advisor whose misconduct has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

News: Most broker arbitration cases are expunged (Life Health Pro)

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