In 2017, this blog featured a post examining the standard applied to requests by brokers to cleanse (erase) their public records of customer complaints, a process called "expungement," here. A recently released (October 2019) study by the investor protection foundation run by the Public Investors Arbitration Bar Association (PIABA) reports that the process is “broken” as a result of being “systematically gamed, exploited and abused” by brokers and brokerage firms.
Among the problems found, according to PIABA's study are sham cases seeking nominal damages ($1.00) resulting in lower costs and fewer arbitrators, and brokerage firms which almost never (only 2% of the time) oppose brokers' requests for expungement. Investors only rarely appear to oppose expungement requests, and may not even get notice of expungement hearings. The result is that the dice are loaded in favor of expungement, with the result that investor complaints, including those that may be settled for a significant payment, never see the light of day.
Are meritless claims against brokers made by investors? Without question. Should brokers be able to unilaterally wipe the slate clean, leaving the appearance that no claim had ever been filed in the first place? That is a much tougher to justify--especially if the system for vetting such requests lacks sufficient safeguards to ensure that they are granted only in extraordinary cases where the request is truly justified.
News and commentary from the Financial Services attorneys at Preti Flaherty.
