COLUMBUS, Ohio, May 21, 2021 /PRNewswire/ — David P. Meyer, President of the Public Investors Advocate Bar Association (PIABA), has co-authored a new report on the FINRA expungement process. PIABA is an international bar association whose members represent investors in disputes with the securities industry. PIABA regularly weighs in on issues that impact its members and the investors that they represent and advocates for regulatory change when necessary.
The 2021 Updated Study on FINRA Expungements is a joint report from PIABA and the PIABA Foundation that details the systematic problems with the FINRA Expungement process and the abuse and gamesmanship used by brokers and brokerage firms to erase past customer complaints from the public eye.
FINRA Arbitrators Approve 90% of Expungement Requests
The PIABA study analyzes FINRA’s process for handling requests to expunge records that can appear on its BrokerCheck portal, an online tool that provides information about documented complaints and disciplinary actions against brokers and firms. The information is used by investors vetting potential brokers to manage their savings and securities regulators looking to root out bad brokers.
While FINRA’s BrokerCheck tool has become increasingly popular, its expungement arbitration process, the new report shows, compromises its reliability as a tool to protect investor interests.
While the expungement of customer complaints is supposed to be an extraordinary remedy applied in very narrow circumstances, the statistics reveal that in practice, expungements are granted in an alarming amount of cases. In a review of 700 expungement awards decided between August 2019 and October 2020, the PIABA study found FINRA arbitrators grant expungement requests 90% of the time.
As noted by Meyer and co-authors in the 2021 study, FINRA’s continually high expungement rate stems in large part from «straight-in» expungement cases. A straight-in expungement case is an arbitration initiated by brokers for the sole purpose of requesting expungement. Customers who made the original complaint are not a party to the case.
According to PIABA, the number of straight-in expungement cases increased 924% from 2015 to 2018. Brokers learned how to game the system by waiting until customer disputes concluded before initiating a new arbitration against their brokerage firm to expunge claims, usually without any opposition.
That problem, the 2021 report claims, means FINRA’s expungement process fails to give those with an interest in the outcome of any expungement request, such as a securities regulator or the customer who made the complaint, an opportunity to present evidence opposing expungement when appropriate. As Meyer asked at a press conference for the new study:
«With so many brokers’ records being erased through unopposed expungements, how can BrokerCheck be relied upon today by investors to make informed decisions about whom they trust to manage their life savings?»
The PIABA report provides recommendations: FINRA needs to involve interested parties.
FINRA doesn’t currently notify state regulators until brokers seek court confirmation after expungements are granted, and doesn’t provide a way for them to review the validity of claims or present evidence against a request. While the process provides notice to customers so they can appear, there’s no meaningful way for them to participate.
SEC Considers Proposed FINRA Rule Changes
The 2021 Updated Study on FINRA Expungements, which can be viewed at PIABA.org, comes as SEC commissioners deliberate over approving FINRA’s proposed rule changes to the expungement process, which includes using three randomly selected arbitrators from a special roster and more training.
According to PIABA, the proposed changes fail to address the underlying problems and will not the appropriate solution. The deadline for the SEC to approve the proposed rule change is May 28, 2021.
David P. Meyer is President of PIABA and Founding Partner of Meyer Wilson, a law firm that represents clients in investment loss claims and class actions. Mr. Meyer has represented over a thousand individuals nationwide in claims against the security industry and has helped his firm recover more than $350 million in compensation for clients.
For more information about David P. Meyer or Meyer Wilson, visit www.investorclaims.com.
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SOURCE Meyer Wilson