April 16, 2009
Via Email rule-comments@sec.gov
Ms. Elizabeth M. Murphy
Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Re: Proposed Changes to U-4/U-5 Reporting Requirements
I am an attorney who frequently represents investors in the FINRA Dispute Resolution arbitration program. I also represent registered representatives in disputes with their broker dealers, and am a chair qualified FINRA arbitrator. I am a public member of FINRA’s National Arbitration and Mediation Committee.
In most cases where I represent investors in disputes with their brokers, I do not name the individual representative as a respondent because it is not in our clients’ best interests to do so. There are many reasons for this. One is that, under the current system, each separately represented respondent has an opportunity to rank and strike the panel of arbitrators. Another is that the possibilities for settlement are decreased when the representative is named in the case. Most experienced claimants’ counsel that I know are of the same opinion. The fact that brokers are not named is not indicative of their lack of culpability. Most investor cases are filed because of violations of sales practice rules committed by the individual broker – precisely the kinds of complaints that other investors would want to know about.
Investors are routinely told that they should do their homework and investigate the background of a financial advisor before making a decision on who to hire. FINRA and the SEC both give this advice, as does the press. Earlier this week, the Wall Street Journal ran a special report on how to choose a financial advisor. Whenever this advice is given, investors are told to consult FINRA’s online broker check system. The advice for investors to educate themselves is sound, except for one thing. Investors are never told that if their broker was the subject of a customer complaint (or ten of them) that was filed in arbitration, they will probably never know about it, because the claims are not reported unless the broker is named as a respondent. Giving misleading information about a broker’s history is worse than giving no information at all. The system needs to be fixed. If a claim filed in arbitration identifies an individual representative, it should be reported and disclosed for investors to see. By the same token, if a broker is named and is exonerated by the panel, that should certainly be made a part of the record as well. But to represent that a broker has never had a claim, when in fact any number of his customers have filed arbitration claims resulting from his conduct does a disservice to investors, and is completely contrary to the SEC’s goals of educating investors.
Very truly yours,
Robert S. Banks, Jr.
Banks Law Office, P.C.
Portland, Oregon