By Suzanne Barlyn
Aug 30 Broker Edwin "Mike" Lickiss wants to
erase past public disclosure reports that he says reveal old and
irrelevant details that unfairly hurt his livelihood.
He may now get his wish, even though regulators typically do
not allow brokers to clean up, or "expunge," their records
unless the information is somehow wrong or false. A California
appeals court decision last week in a lawsuit by Lickiss could,
in many cases, make the process easier.
The ruling will let a judge invoke unusually broad authority
in deciding whether to erase details about more than a dozen
arbitration complaints from Lickiss' record, all based on what a
court decides is simply the fair thing to do.
The judge would not have to follow rigorous standards the
Financial Industry Regulatory Authority has in place for when
brokers ask arbitrators to sign off on expunging their records.
Those requirements can help protect investors by making sure
they are informed about a broker's past.
But lawyers who represent brokers are now closely watching
the Lickiss case because a victory would be a good reason for
some brokers to pursue expungements in court. Gaps in FINRA's
expungement procedures, until recently, made it difficult for
some brokers to even request removing certain complaints in
While the case could have the greatest impact on many of
California's 285,000 licensed brokers, it could potentially have
wider influence on courts in other states, lawyers say. About 45
percent of the nation's 630,000 securities brokers are licensed
"This is quite a case," said Patrick Burns, a lawyer in
Beverly Hills, California, who represents brokers. For years
brokers have complained that disclosures are nearly impossible
to get removed through FINRA's expungement arbitration process,
Still, Lickiss has a long road ahead. The appeals court
decision only allows his case to go forward after 18 months of
effort by the regulator to get a court to throw it out. Now
Lickiss must begin the process of convincing a judge to order a
clean-up of his record.
Lawyers for aggrieved investors are concerned, however,
about the consequences. Conduct, and not the age of a complaint,
is what matters, they say. Judges may not accurately interpret
events that played out long ago and harmed investors.
"It becomes a dangerous precedent for investors who rely on
disclosure records to ascertain who to do business with," said
Steven Caruso, a New York-based securities arbitration lawyer,
who is not involved in the case.
But a court's review would protect investors while allowing
"deserving brokers" to have "inappropriate blemishes removed
from their public records," said Jeffrey Salisbury, a lawyer in
Eugene, Oregon, representing Lickiss.
A FINRA spokeswoman declined to comment. Lickiss did not
Mike Lickiss' problems started in 1986, when he worked for a
predecessor of the brokerage unit of LPL Financial Holdings Inc
and started selling stock in Commonwealth Equity Trust,
a real estate investment trust, or REIT.
REITs invest in commercial real estate, such as hotels and
strip malls, offering a way to profit from rises in property
The REIT was initially well-managed but took on too much
debt in 1991, just as California commercial real estate slumped.
It filed for bankruptcy after its manager took $7.2 million in
Seventeen customers filed arbitration cases against Lickiss,
mainly for REIT investments they made between 1987 and 1991.
They alleged he did not disclose the risks. Details of those
complaints, most of which were settled, still appear in the
public record for Lickiss, a broker at California-based
Investment Architects Inc. A spokesman for the firm did return a
call requesting comment.
Lickiss, a broker since 1977, argued he was not to blame for
the problems, according to court papers. He said his record was
clean until the REIT failed and "beyond reproach" since, except
for a "small" incident involving a $10,000 note he bought as an
investment for a customer without his firm's approval.
Regulators fined him $8,500.
But the report reflects some other questionable disclosures.
Among them: he was "permitted to resign" in 1995 - typically an
alternative to being fired - for privately settling a complaint
without his firm's knowledge.
Brokers who may stand the best shot at convincing a judge to
order expungement are those whose records were tainted by claims
stemming from entire classes of failed securities, said James
Sallah, a lawyer in Boca Raton, Florida, who represents brokers.
That could include scores of brokers whose records show
arbitration complaints filed against their firms by customers
who bought auction rate securities that became illiquid in 2008,
leaving them stranded. The securities were sold for more than a
decade by advisers with few problems prior to the 2008 financial
Many brokers with otherwise clean records now have details
about arbitration complaints involving the securities on their
public records. FINRA rules require the disclosure if a broker
sold securities at issue, even if they are not named in the
case. But erasing those complaints can be tough for many brokers
who, among other things, may have trouble meeting FINRA's
In California, they could now ask a judge to rule that the
disclosure is just not fair.
"Now you have some precedent, at least in California, for
opening the floodgates," Sallah said.