“Expungements have become a cottage industry, and we want to help Finra understand what we’re seeing in the trenches,” said Joseph Borg, the director of the Alabama Securities Commission, in an interview with Financial Advisor.
To underscore that, Borg and the commission filed a landmark lawsuit aimed at highlighting cracks in Finra’s expungement arbitration system and appointed two leading PIABA attorneys as Alabama deputy attorneys general on the case.
In its 750-page motion, Alabama accused Finra arbitrator Harvey R. Linder of “fraud, corruption and undue means” in his decision last September to erase five customer complaints from former Merrill Lynch advisor Kent Kirby’s record. Kirby is now an advisor with UBS.
Alabama also found that Linder is one of the most frequently selected arbitrators in the country and despite the “extraordinary” burden that brokers must overcome to gain expungements, he grants requests for them almost 100% of the time.
Linder declined to comment on the lawsuit.
"We’re documenting the problems so when Finra and the SEC are looking for expungement solutions, they can see the issues more clearly,” added Borg, who opposes the creation of a special roster of arbitrators.
This is the second serious legal rebuff of Finra arbitrators to explode into public view this year. On January 25, Judge Belinda Edwards of Superior Court of Fulton County in Georgia found that Wells Fargo and its counsel manipulated the Finra arbitrator selection process. Wells Fargo is appealing that decision and Finra has refuted the accusations.