A growing number of brokers are filing expungement cases to erase old customer complaints.

Year-to-date through July 27, the number of stand-alone expungement cases decided by Finra arbitrators has more than doubled the number for the same period last year.

So far this year, 95 cases were concluded, the vast majority granting brokers’ requests to expunge old customer complaints and arbitrations. Last year, 42 such cases were decided, according to an analysis by Financial Advisor magazine.

These stand-alone expungement cases are filed separately and usually well after an incident has hit a rep’s disciplinary record. That’s in contrast to the common process now where brokers seek expungement at the same time a case is settled or goes to arbitration.

And it looks as if the pace of stand-alone expungement cases won’t stop anytime soon.

That’s thanks in part to Dochtor Kennedy, managing attorney at AdvisorLaw LLC in Broomfield, Colo., who actively markets to advisors looking to clean up their records. By his own count, he’s concluded more than 30 cases this year, and he says he has another 105 pending.

Other lawyers expect more brokers to continue bringing expungement cases, given the importance of a clean disciplinary record.

Standing Out On BrokerCheck

With Finra actively marketing BrokerCheck (the system through which investors can check an advisor’s disciplinary record) it’s critical for reps to clean up nuisance complaints, observers say.

“There are the TV ads for BrokerCheck, so everyone is becoming more savvy,” says Seth Lipner, a partner at Deutsch & Lipner of Garden City, N.Y., who represents investors and individual brokers.

“With any fee-based account, you have to send out a BrokerCheck report” with the account paperwork, Lipner adds.

Kennedy chalks up the expungement activity to a Finra requirement put in place a year ago requiring firms and advisors to provide a link to BrokerCheck with any online profile.

With the heated competition for clients, “there’s good reason to want to get your records cleaned up,” Lipner said.

Permanent Records

Before a change in 2010, complaints that had not been adjudicated or settled for nuisance amounts would be archived and not shown on BrokerCheck after two years.

Now a complaint “stays on the record permanently,” says David Robbins, a partner in the New York City law firm of Kaufmann Gildin Robbins & Oppenheim LLP who, like Lipner, represents investors and brokers, including some broker expungement cases.

Robbins feels an accumulation of meritless complaints that some brokers have experienced is contributing to the demand for expungements.

“I’ve got [a case] now,” he says. “Nobody likes to be unjustly accused.”

At the same time, word has gotten out that expungements are not hard to get, Lipner adds. “It’s a very high [win] rate—about 90 percent.”

The review of recent cases by Financial Advisor confirms that most of the time, arbitrators agree to expunge negative information.

The cases are handled like a regular arbitration, except that advisors/claimants usually don’t ask for damages; they just want a clean record. Brokerage firms or complaining customers are named as defendants and must be noticed. In most cases, neither the customers nor the firms object to the expungement requests.

Customers Often Don't Object

“You have to make a good faith effort to contact customers, not just send a message to a dead e-mail address,” Kennedy says.

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 many cases, advisors have argued successfully that they were never a customer’s advisor, or the product at issue was the fault of the brokerage firm, was transferred in or sold by another broker.

Decisions are “based upon the veracity of the allegations and whether the broker was actually involved,” Kennedy said.

Letters, notes, e-mails, account documents, investigative findings and positive statements from customers can help make the case. That, plus a credible advisor.

And while some customers do oppose expungements, “I’m surprised how many investors end up contacting us [and say] they have a very good opinion of the broker” even though they may have complained about a particular investment, Kennedy says.