| July 23
July 23 The U.S. Securities and Exchange
Commission has approved a new brokerage industry rule to ban
dispute settlements between securities firms and investors that
require investors to agree to erase complaints from brokers'
In addition, the SEC recommended that the Financial Industry
Regulatory Authority (FINRA) conduct a "comprehensive review" of
other procedures that can enable brokers and firms to erase, or
"expunge," certain details from their public records, it wrote
in an order posted on its website on Wednesday.
The agency is concerned by how frequently the Wall Street
industry-funded watchdog's arbitrators grant brokers' requests
to erase details of customer complaints from their records, not
just under settlement agreements with investors.
FINRA, Wall Street's industry-funded watchdog, filed its
plan to ban the expungement-related settlement pacts with the
SEC in April.
The move followed a study by the Public Investors
Arbitration Bar Association (PIABA), a group of securities
arbitration lawyers, that found 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.
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 of 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 the records. Brokers who are successful must then obtain
a court order to complete the process. FINRA can oppose the
PIABA has alleged that brokerages strong-arm investors into
waiving their rights to oppose expungements, but lawyers for
brokerages have disputed the point.
The new rule "should help assure that accurate and complete
customer dispute information remains available to the investing
public, regulators and broker-dealers," the SEC wrote.
The completeness of that information "is critical for the
protection of investors and effective regulatory oversight," it
Brokers can also rely on other FINRA rules and procedures to
request expungement, independent of a dispute or settlements
The SEC noted its concern about a "high number of cases" in
which FINRA arbitrators granted requests to expunge brokers'
records. It encouraged FINRA to assess whether changes are
needed to ensure that expungement is permitted only where the
information in question "has no meaningful investor protection
or regulatory value."
A FINRA spokeswoman was not immediately able to comment.
(Reporting by Suzanne Barlyn; Editing by Cynthia Osterman)