It’s far too easy for brokers to clean up their disciplinary records, says a new study of arbitrator-ordered expungements.
Finra arbitrators are rubber-stamping requests 90 percent of the time to remove customer complaints, according to the Public Investors Arbitration Bar Association (Piaba), which represents plaintiffs’ attorneys.

The study analyzed 1,600 cases, from January 1, 2007 through 2011.
Through mid-May 2009, expungement was granted in 89 percent of the cases, the study found. From May 2009 through the end of 2011, brokers were granted expungements in 97 percent of cases.

The two periods correspond to different Finra reporting requirements. Piaba only looked at cases resolved by settlements or stipulated awards, where the broker also requested an expungement.
 An expungement is “supposed to be an extraordinary relief measure,” said Piaba president Scott Ilgenfritz, a partner with Johnson, Pope, Bokor, Ruppel & Burns LLP.
The study “clearly indicates that the current expungement procedures are seriously flawed,” he said
Piaba’s study is the first in-depth review of expungement rulings. The group wants Finra and state regulators to more closely scrutinize how arbitrators are granting expungements.           
Plaintiffs’ lawyers and regulators have been concerned about brokerage firms settling with customers in exchange for not opposing an expungement request. The process gives the appearance of buying a clean record.
But defense attorneys note that brokers ask for expungements in only a fraction of cases, and those that do may be deserving of relief.
Under Finra rules, brokers must show that a customer's complaint was false, factually impossible or clearly erroneous, or that the rep was not involved with the client.

In August, Linda Fienberg, president of Fire’s arbitration unit, said that the regulator is considering changes in those standards.
This week, Finra issued guidance on its expungement rules, telling arbitrators to better explain their reasons for granting relief, and describing what documents or evidence they relied on.