April 9, 2009
Thank you for the opportunity to comment on the Rule Proposal of FINRA to amend the Forms U-4 and U-5, as well as FINRAs customer complaint disclosure rules. As an attorney who focuses on representing public investors, especially those in FINRA arbitration, I feel that these rule changes are important to the investing public and to the securities industry.
Specifically, I write in support of the proposed rule regarding disclosure of customer complaints where allegations are made against a registered representative but that representative is not named as a respondent in the case. These complaints should be disclosed in the CRD system, regardless of whether the representative or broker was named as a respondent. Greater disclosure is necessary to keep customers and the investing public fully informed of their brokers conduct. Current and potential clients should have access to full disclosure of whether their broker had been the subject of a complaint, whether or not they were actually named as a party.
There are several reasons why a broker may not be named as a respondent in a case. One reason involves the selection of arbitrators in FINRA. If a claimant names both the firm and the broker as respondents, the firm and the broker both get the opportunity to rank arbitrators. The firm and broker can then collaborate on which arbitrators they feel would be more sympathetic to their case. The firm and broker can also collaborate on striking arbitrators which may be less sympathetic to their case. Likewise, because of the current ranking system, the claimants choices for arbitrators would be given only 1/3 weight, while the firms and brokers choices would be given 2/3 weight. This gives the firm and broker an advantage in the arbitrator selection process.
For that reason, often claimants will not name the broker as a respondent. In such instance, the claimants choices for arbitrators and the firms choices will be given equal weight. Thus under the current system, claimants and their attorneys have a disincentive to name the broker as a respondent or risk getting an arbitration panel that may be more favorable to the firm and broker. Other reasons for not naming the broker include a claimants preference not to deal with two defense lawyers at the same time, as well as a claimants preference to avoid getting a large award only against the broker (who may not be able to pay the award).
Many registered representatives feel that the proposed changes would leave them unprotected against a customer who unfairly or wrongly accuses them of misconduct. However, FINRAs rules already give these representatives protections from unmeritorious claims – through the expungement process.
Again, I appreciate the opportunity to comment on these proposed changes, and I support the proposal to include greater disclosure of complaints where allegations were made against a representative but were not named as a respondent.
Sincerely,
David Neuman