May 7, 2008
I am an attorney who represents customers in Finra Dispute Resolution arbitration, a forum in which individual investors fail to recover full damages due to investment fraud over 99% of the time, a percentage which rounds to a 100% loss rate. The only issue is how badly the customer will lose.
The rule change should be rejected along with the entire concept of purging records of customer complaints.
Because individual investors are forced to take all complaints to an industry sponsored arbitration forum where they always lose, it is important that they have the opportunity to evaluate a securities salesman prior to doing business with him or her. The industry run CRD system is the only source of information available to investors. While only a small fraction of one percent of public investors uses the system, those that do should be able to obtain an accurate record of a broker's customer complaints. They can't. More information is withheld than disclosed. The broker can enter whatever self serving mischaracterization of the complaint he or she wishes, but it should, at minimum, be on the record. It isnt.
Finra, through a variety of deceptive practices, has prevented much of the most abusive broker conduct to go unrecorded. These practices include changing the Form U-4 so that arbitration claims concerning a brokers conduct arent reportable unless the broker is specifically named as a party in the arbitration. Within a short period of time, arbitrators began giving awards solely against individual representatives who lacked assets. Firms, which were responsible were dismissed. The logical and intended result was that customer lawyers quit specifically naming the individual representative. It was the only way to prevent receiving an uncollectible award.
Then Finra invented expungement. Many customers still named individual brokers. Large producers needed to purge their records. Finra accommodated. Arbitrators were sent expungement orders to sign without any basis given or opportunity for discussion. Hundreds of records were purged. It apparently embarrassed even Finra so it returns with further amendment to create the illusion that it has an institutional spine. It doesnt.
The revised rules offer little, if any, benefit to the investing public. The arbitrators will simply have a phone conference with the Finra case administrator and member firm attorney and tell them that the claim was (1) clearly erroneous, (2) the registered person was not involved, or (3) the claim was false. The panel will consider the amount paid in settlement and the terms of the settlement, but thats all. Expungement granted if the arbitrators want to be appointed to any more panels. The end result will be no change whatsoever. Finra will still be able to a arrange hundreds of additional expungement for members with influence.
The amendment is a farce and should be rejected. The Commission should order that all further expungement stop immediately and those previously granted be listed on the Finra-DR website.