Jan 24 Wall Street's industry-funded watchdog
will propose banning settlements in disputes between brokerages
and investors that require investors to not oppose erasing
details about complaints from brokers' public records, its chief
wrote in a letter to two U.S. senators released on Friday.
Settlement agreements that provide additional compensation
to investors who allege they lost money because of their
brokers' advice, in exchange for not trying to block the removal
of black marks from their brokers' records, could interfere with
determining if a broker is entitled to such relief, wrote
Richard Ketchum, chairman and chief executive of the Financial
Industry Regulatory Authority.
The remarks appeared in a letter Ketchum wrote to Senator
Jack Reed, a Democrat of Rhode Island, and Senator Chuck
Grassley, a Republican of Iowa, dated Jan. 6.
The two senators, who released the letter on Friday, wrote
to FINRA in December to press for details about the regulator's
process for erasing, or "expunging," details about investors'
complaints from brokers' public records.
The senators' request followed a study by the Public
Investors Arbitration Bar Association (PIABA), a group of
securities arbitration lawyers, finding that brokers succeeded
96.9 percent of the time between mid-2009 and the end of 2011 in
expunging details about cases brought by investors against their
firms that were later settled.
"(I)t appears the organization is taking this problem
seriously," Reed and Grassley said in a joint statement on
FINRA's arbitration unit head, Linda Fienberg, said last
August that new rules could be issued to address the problem as
soon as April 2014. The nature of those rules, however, was
FINRA rule changes must be approved by the U.S. Securities
and Exchange Commission.
Investors who claim to have lost money because of a broker's
misconduct or advice often file a case against the broker's firm
in FINRA's securities arbitration forum. Details about the
complaint then appear in the broker's publicly available
disclosure report in a free database for investors known as
Brokers who want to erase those details typically file their
own FINRA arbitration cases, asking for a recommendation to
expunge their records. FINRA's arbitrators are separate from its
regulatory staff. Brokers who are successful must then obtain a
court order to complete the process. FINRA can oppose the court
PIABA has alleged that brokerages strong-arm investors into
waiving their rights to oppose expungements. The idea, however,
"does not always originate with the brokerage firm or the
broker," Ketchum wrote.
Ketchum's nine-page letter also addressed other PIABA
recommendations, as the senators requested.
FINRA can still improve by sending a regulatory staffer to
each expungement arbitration, instead of waiting until a broker
requests court confirmation of the arbitrator's recommendation,
said Jason Doss, PIABA's president. Nonetheless, FINRA's effort
to possibly ban bargaining for expungements is a "step in the
right direction," Doss said.
(Reporting by Suzanne Barlyn; Editing by Leslie Adler)