Many investors rely upon BrokerCheck, a resource maintained by the Financial Industry Regulatory Authority (FINRA), to research whether their broker has been the subject of complaints by regulators or other customers. However, many investors do not realize that the information provided by BrokerCheck is often incomplete. FINRA provides for a procedure whereby a broker can have complaints erased from their records so that they do not appear on BrokerCheck and are not seen by prospective future customers.
On May 18, 2021, the PIABA Foundation and the Public Investors Advocate Bar Association (PIABA), of which this firm’s lawyers are members, released a report that found major problems with the expungement process. PIABA found that the number of expungements by FINRA has risen from 59 in 2015, to 545 in 2018, to 700 in the period from August 1, 2019 to October 31, 2020 on which the study focused. Moreover, those 700 included 1,360 customer complaints, meaning that many of the awards dealt with situations where multiple customers had complained about the same broker, but those complaints were erased from the public records.
While it is understandable for a broker to wish to have a baseless complaint removed from their record, the report by PIABA suggests that the procedures in place by FINRA fail to fairly determine whether or not the complaints were without merit. Rather, PIABA found that expungement requests were being rubberstamped by FINRA. The report explained: ““Arbitrators have continued to grant expungement requests 90 percent of the time and the reason is that FINRA’s arbitration process allows brokers and brokerage firms to make expungement requests to arbitrators that are unopposed the vast majority of the time.” PIABA found that this is because, under current rules, FINRA does not provide interested parties, such as state securities regulators and aggrieved customers, a meaningful opportunity to present evidence to oppose an expungement.
As a result, investors should be aware that a clean BrokerCheck report does not mean that there have not been multiple prior complaints against a broker. If an investors is concerned that a broker may have engaged in misconduct in connection with their account, they should not be dissuaded from seeking legal counsel by the fact that the broker has a clean record on BrokerCheck. It is possible that the clean record is simply the result of the broker being granted unopposed expungements. If you are concerned that your broker has engaged in misconduct, contact our lawyers for a free initial consultation to help evaluate whether we may be able to assist you in pursuing a claim against your broker.