April 16, 2009
I write in support of proposed rule SR-FINRA-2009-008 requiring member firms to report complaints contained in a FINRA-DR statement of claim relating to the sales practices of a registered representative regardless as to whether the representative has actually been named as a party to the arbitration.
My practice consists primarily of representing individual investors with claims against the securities industry in FINRA-DR arbitration.
Generally, complaints made against registered representatives are required to be reported for U4/CRD purposes. However, over the past several years, employing broker-dealers have almost uniformly adopted a policy of not reporting complaints against individual brokers who have not been named as parties in arbitration claims arising out of their alleged misconduct.
For a number of legal and strategic reasons, its rare that I name an individual broker as a party to a FINRA-DR arbitration. However, the statement of claim invariably references the registered representative by name together with his/her CRD number. Further, the statement of claim details the sales practices and misconduct of the individual broker involved with the claim.
As an advocate of investor rights, its frustrating to see that the employing members often fail to update the CRD of the offending registered representative to reflect the complaints detailed in the statement of claim. Years ago, I thought that this failure to report the complaint was evidence of inadequate supervisory and/or compliance systems. However, I recently learned that the failure to report the complaints is largely due to this perceived loophole in the reporting requirements.
An aggrieved investor who has gone through the steps of hiring an attorney and paying the significant FINRA-DR filing fee certainly takes the claim seriously. There is no reason that a complaint should not be entered into the CRD system merely because a broker is not named as a respondent in the statement of claim.
Prior to submitting this comment, I read some of the comments opposing the rule by industry professionals. The recurring theme appears to be guilty before charged. This argument is offensive on a number of levels. The industry is fully aware that the CRD reporting system requires the reporting of customer complaints. The CRD system was not designed to be an adjudicated awards database. Moreover, the FINRA website contains the following disclaimer to individual investors using the CRD system, In an effort to remain objective, FINRA lists each incident as reported by securities regulators, the individual broker and any involved firms. Please keep in mind a number of items involve pending actions or allegations that have not been resolved or proven. The presence of this information does not automatically indicate wrongdoing on the part of the broker.
The investing public has the right to obtain complete information regarding complaints made against brokers. In turn, registered representatives are given tools to respond to complaints listed on a CRD. Brokers accused of defrauding investors should not be permitted to avoid CRD reporting requirements merely because they have not been named as a party to an arbitration sponsored by FINRA-DR.
For the foregoing reasons, I urge the commission to approve the proposed rule.
Thank you for your kind consideration.
Dayton P. Haigney, III