The number of investor complaints against brokers that have been expunged by Finra increased 1,016% from 2015 to 2018, under a system that is broken and rife with abuse, according to a new report.
The Finra expungement process that allows brokers to sometimes hide misconduct and disciplinary actions taken against them is so seriously flawed it should be suspended, the Public Investors Arbitration Bar Association (PIABA) Foundation said today.
The system “is being systematically gamed, exploited and abused with one-sided hearings, manipulation of arbitrator selection, deletion of significant customer complaints and abusive and possibly fraudulent conduct to such an extent that it must be frozen now until it can be repaired,” the PIABA Foundation said in a new report that reviewed the handling of 1,078 Finra cases from 2015 to 2018.
The problems, the report said, make Finra's BrokerCheck public database of brokers histories an unreliable due diligence tool for investors.
Until the expungement process can be fixed, “BrokerCheck cannot be considered a reliable tool for investors to use when researching the background of brokers,” PIABA Foundation President Jason Doss said during a press conference today.
The expungement of customer complaints increased 1,016% from 2015 to 2018, the trade group of plaintiff attorneys reported.
“One individual broker successfully requested that 24 complaints be expunged in a single proceeding,” according to the report.
There has also been a 924% increase in the filing of “expungement-only” cases, which allow brokers to initiate arbitration against their firm for the sole purpose getting the firm to expunge a customer complaint without naming the customer or explaining their rights to object, the PIABA Foundation said.
The process is “destroying the integrity of the arbitration process and of BrokerCheck, a key tool used by investors to research brokers,” Doss said.
Data also indicates that brokers and firms are intentionally directing cases to arbitrators whom they know to be most friendly toward expungement requests, the report said.