Businessweek Article Explores “Expungement” After Settlement

Zeke Faux of Bloomberg Businessweek recently published an article exploring the critical issue of brokers settling FINRA arbitration claims brought by their customers, then applying to the arbitration panel to erase or “expunge” the complaint from their public records.

Expungement is a remedy available to financial advisors who believe they have received unwarranted marks on their licenses. These brokers are typically concerned that the marks could hurt their business and career prospects when current or prospective clients look at FINRA’s BrokerCheck database to explore their professional background.

When used properly, expungement is a perfectly valid avenue for a financial advisor or other registered representative to pursue. Problems arise, though, when the process is abused. For example, in many instances a brokerage firm might attempt to make settlement contingent on a customer agreeing not to take part in the expungement hearing. Employing this kind of pressure tactic with a customer who has already suffered substantial financial losses simply shouldn’t happen.

In the Businessweek article, I am cited on this topic:

Brokers often refuse to settle unless the clients agree to stay out of the expungement hearing, says Kevin Galbraith, a lawyer in New York…. Most choose to take the money and end the headache, he says.

This is a critical issue in the arena of FINRA arbitration, and the Public Investors Arbitration Bar Association recently published a study finding that arbitrators granted expungement after cases were settled 97% of the time in a sample of cases taken from 2009 through 2011. In one instance, a single broker was able to wipe out 35 marks from his record!

Clearly, the expungement system as it is currently set up is not working. FINRA has promised to review the issue and to take the steps necessary to correct the problems. How quickly and how effectively it acts remains to be seen.

If you are an investor concerned about potential misconduct by your broker, or a broker wanting to discuss the expungement process and how it can work properly, you should contact The Galbraith Law Firm at 212.203.1249 or kevin@galbraithlawfirm.com for a free confidential consultation.