Dec 16 Two U.S. senators want Wall Street's
industry-funded watchdog to clarify and strengthen standards for
allowing stock brokers to wipe details about investor complaints
from their public disclosure records, according to a letter
The bipartisan request to the Financial Industry Regulatory
Authority (FINRA) from Senator Jack Reed, a Democrat from Rhode
Island, and Senator Chuck Grassley, a Republican from Iowa,
stems from a study by a group of securities arbitration lawyers
that suggested brokers are often successful in erasing or
"expunging" details in a particular circumstance.
The Public Investors Arbitration Bar Association (PIABA),
which unveiled the study in October, found 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.
Now Reed, a senior Democratic member of the Senate Banking
Committee, and Grassley, who has long been interested in
oversight issues related to the financial services sector, want
more details from FINRA, according to a letter they wrote to its
chairman and chief executive, Richard Ketchum. For example, they
asked FINRA to reveal the number of times it "questioned or
challenged" instances of expungements for brokers and detailed
descriptions of each instance.
"FINRA shares the senators' serious concerns," a FINRA
spokeswoman said in a statement. The regulator recently issued
guidance to assist arbitrators in the proper performance of
their expungement responsibilities, she said.
FINRA is also enhancing arbitrator training on the issue, the
Investors who allege they lost money because 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, however, can oppose
the court application.
Many settlement agreements in securities arbitration
disputes between brokerages and customers require investors not
to object to the broker's expungement request, PIABA has said.
Wall Street firms typically insist on the provision, PIABA has
said. That means arbitrators who recommend expungement only hear
one side of the story, the group has said.
"We believe that meaningful investor protection includes the
disclosure of whether a customer dispute was settled," Reed and
Reed and Grassley also want FINRA to respond to
recommendations that PIABA made in its study, including a
procedure that would require FINRA to review brokers'
expungement requests when they are filed with its arbitrators.
FINRA's arbitration unit head, Linda Feinberg, said in
August that new rules could be issued to address the problem as
soon as April 2014.
The senators asked FINRA to respond to their requests by
(Reporting by Suzanne Barlyn; Editing by Lisa Shumaker)