Posted On: June 20, 2013

“Ask and It Shall Be Received": Securities Brokers Can Wipe Complaints and Even Legal Claims Off Their Public Records

The New York Times is reporting that on May 24, a Financial Industry Regulatory Authority panel of arbitrators granted Wells Fargo (WFC) broker Michele Kief ‘s request that it recommend that the securities complaint, in which the bank settled for $125,000 allegations of fraud and negligence related to her actions, be deleted from her record. They also agreed that it be noted that the investments at issue were “suitable and safe. “There at least eight other client disputes on BrokerCheck against Kief. BrokerCheck is FINRA’s regulatory database.

Just two months before, FINRA arbitrators also consented to recommend the deletion of a securities arbitration complaint against ex-Charles Schwab (SCHW) executive Kimon P. Daifotis. This was the eighth such recommendation against Daifotis, who ran the Schwab Yield Plus fund that led investors to lose hundreds of millions of dollars.

“As FINRA publishes, advertises and encourages investors to check a broker’s record to gain information about their broker or a prospective broker, FINRA arbitrators often wipe that record clean.” Says William S, Shepherd, a securities attorney who represents investors in cases against brokers. “Everyone would like to wipe our credit record clean, maybe we just need to ask. Also, there is no educational requirement to become a securities broker, not even a high school degree. The only requirements are a 4-month apprenticeship and passing a multi-state state and a FINRA examination. Yet, securities brokers manage millions, some even hundreds of millions, of investors’ money. Their average six-figure income brokers places them in the highest percentiles of earnings in the U.S, along with other licensed professionals. Public disclosures are, and should be, important for those who often turn over their retirement accounts and even entire life savings to be handled by those who call to extoll their expertise.”

Some investor advocates say they wouldn’t criticize brokers’ efforts to clean up their records if only the latter were forced to contend with the same legal exposure as the defendants of lawsuits. Instead, brokers can insist that before setting up an account, customers agree to surrender their right to file a legal complaint in court, which means that Wall Street firms and their employees don’t have to deal with having a court record and allegations are resolved via private arbitration.

This means that broker check is the only place where an investor can find a record of securities allegations made against a broker, including client complaints, criminal histories, bankruptcies, liens, and regulatory actions. However, these brokers can get recommendations for deletions from FINRA if arbitrators conclude that a securities claim was wrong or false or the broker wasn’t’ actually involved in the alleged wrongdoing despite being named in association to it. A court has to confirm the recommendation.

In 2012, brokers sent state regulators, who are given the opportunity to protest when a broker requests to have information from BrokerCheck expunged, 519 requests that a FINRA panel’s expungement recommendation be allowed to proceed. That’s significantly up from 2011 when there were 110 expungement requests. The increase in expungement requests is in part a result of new disclosure demands that require that brokers report complaints if they were involved even though they weren’t named as respondents. Baruch College's Zicklin School of Business Professor Seth E. Lipner examined 150 expungement requests during the 2011 and 2012 fourth quarters, respectively, which were settled prior to there being a hearing and discovered in every case but five, arbitrators granted expungement.

Meantime, the SRO is expected to put out a proposal making it less difficult for accused brokers to expunge their records when a hearing and an actual arbitration decision are involved.

A Rise in Requests From Brokers to Wipe the Slate Clean, NY Times, June 10, 2013

BrokerCheck, FINRA

FORMER CHIEF INVESTMENT OFFICER AND PORTFOLIO MANAGER FOR THE SCHWAB YIELDPLUS FUND AGREES TO SETTLE CHARGES, SEC, July 16, 2012


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SEC Commissioner Aguilar Calls For the Abolishment of Mandatory Arbitration Agreements, Stockbroker Fraud Blog, April 21, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013