Aug. 24, 2022
To address this issue, the regulator needs to look closely at how a lot of disclosures end up in the CRD system. Many investor claims only name the firms and are then settled out by the firms through paying a deductible on an E&O insurance policy. This is a logical business decision made by the firms since it’s typically 5x to 10x less than fighting the claim and once closed it eliminates the exposure to the firm as a reportable event. Therefore a large number of allegations are never fully vetted on their merits and land squarely on an advisors record and harm them unless expunged. Other allegations were denied, withdrawn or closed-no action yet still report unless expunged. A detailed report should be run to determine the number of customer complaints that fit these categories but let’s conservatively estimate the number at 20% of all customer complaints. If you look at the expungement numbers, only about 3-5% of all customer complaints get expunged historically. Based on the numbers, the expungement process in its current state is creating an inefficient and inaccurate reporting system and appears to be overly restrictive in its current state. Recommendations- Create an avenue for all settlements, where the advisor was not named and had no say in whether the case should be settled, an affordable option to present facts to an arbitrator before the items goes on the public record. Eliminated the guilty until proven innocent approach being applied in the current system. Have all Denied, Withdrawn, Close-No Action items come off the record after 24 months or some other reasonable amount of time. Do not put a time limit on disclosures to be expunged. Time does not change the facts of many of the cases that get expunged. False claims are false claims. Josh Barber