Study Says Securities Arbitrators Often Expunge Investor Settlements from Brokers’ Records

A recent study conducted by the Public Investors Arbitration Bar Association indicates that securities arbitrators frequently agree to erase past settlements that were paid to investors from brokers’ records. Removing brokers’ settlement payments from their histories could cause future investors to not find out about the brokers’ past misconduct.

The study reveals that 99% of the time, FINRA arbitrators are the ones who suggest expunging these records. Over 70% of these decisions were made without hearings, even though there are new rules in place that say that a record can only be expunged if the complaint is false, erroneous, or did not involve the broker that was accused.

FINRA disagrees with the study results and claims expungements have dropped dramatically since the new rules were put in place in 2004.

According to a number of securities litigation lawyers, FINRA officers, and regulators, arbitrators are not the only ones at fault. 93% of the time, the people filing complaints are small investors that agree to not contest an expungement as part of their settlements.

Melanie Senter Lubin, Maryland’s securities commissioner, says that most claimants are more focused on receiving compensation from brokers that they believe misled or defrauded them than they are about preserving the integrity of the brokers’ disclosure system.

The study examined 200 cases from 2006. In these cases, parties reached settlements based on the claims’ merits and without hearings. FINRA says that these cases are just a small percentage of the cases that were settled last year and that the study had been selective when citing statistics.

Public Investors Arbitration Bar Association President David B. Caruso says that the specific cases that were chosen for the study were the ones that regulators had expressed concern over because no arbitrators had been involved in the hearings. Caruso also said that even though investors wanting settlements could be held partially responsible for the expungements, it was up to arbitrators to figure out whether the settlements should be expunged from broker’s records.

In one case, Karsner & Associates broker Joseph Karsner IV allegedly recommended that investors make investments that were not suitable but did not properly notify them of the risks. Karsner’s lawyer has denied the allegations. Settlements were reached between Karsner and the investors that complained. Arbitrators consented to 18 expungements for Karsner.

If you are an investors that has lost money because of the misconduct of a broker or a brokerage firm, Shepherd Smith and Edwards would like to offer you a free consultation. Our securities litigation lawyers are dedicated to helping investors that have been the victim of broker misconduct recover their losses. We have helped thousands of investors throughout the United States.

Contact Shepherd Smith and Edwards today.

Related Web Resources:

Brokers’ Settlement Records Often Wiped Clean, Washington Post, September 25, 2007
Public Investors Arbitration Bar Association


Contact Information