April 16, 2009
I am an attorney in New York City who has represented public investors in disputes with the securities industry since 2003, and I have also been a member of the Public Investors Arbitration Bar Association since 2003. In addition, I am also a FINRA-DR public arbitrator, and from 1998 – 2001, I defended members of the securities industry against claims submitted by public customers. While working within the securities industry, my case analyses often resulted in the amendment of a broker’s Form U4 or U5.
I write in support of the proposed rule relating to changes in Forms U4 and U5. Presently, securities industry reporting requirements enable stockbrokers to ignore complaints lodged against them. This has been and continues to be a disservice to the investing public.
Presently, if a public customer does not name his/her individual stockbroker as a respondent in a statement of claim, the stockbroker’s employer is not required to disclose the broker’s involvement to t he CRD system. The employing firm does not have to disclose this even if the broker is identified by name and CRD number in the body of the Statement of Claim.
FINRA-DR (formerly NASD-DR) arbitration rules were amended in 2007, including the procedures by which arbitration panels are ranked and “struck”. As a result, it is often strategically imprudent for public customers to name both the employing broker-dealer and the stockbroker as respondents, because the respondents shall have a greater opportunity to integrate their limited “strikes” to the detriment of the public customer, who will only have a limited number of “strikes”. The selection of an arbitration panel is one of the most critical stages in the arbitration process. As a result, under the present disclosure rules many public investors are subsequently left in the dark about the stockbroker’s actual employment history. I believe that a free market should benefit from increased transparency. When investors have more tools at their disclosure to select the most qualified financial advisor, free markets and individual investors are better served. I am in complete agreement with my colleague’s comment that “(t)here can be no more important financial decision than that associated with the selection (or continued employment) of a stockbroker. The public is entitled to know if that person has a history of customer complaints. To filter the access to that information under the guise of "privacy" or by characterizing it as "unajudicated allegations" is nonsense and is but another example of protecting problem brokers at the expense of Main Street investors.”
Accordingly, I also urge the prompt approval of this proposal.
-Theodore M. Davis, Esq.
The New York Irish Center Building