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Are Investors Being Kept In the Dark About Arbitration Cases?

Investors who rely on public records to check out the background of their current or a potential broker are, in many cases, unlikely to get a complete picture, according to a new study by the Public Investors Arbitration Bar Association (PIABA). That’s because it’s too easy for brokers who are involved in investor arbitration cases to wipe their slates clean of any wrongdoing, the study says.

Specifically, the study found that between January 2007 and May 2009, expungement was granted 89% of the time in cases resolved by stipulated awards or settlement and 96.9% of the time between May 2009 and December 2011.

The study goes on to show that some stockbrokers take a particularly aggressive approach to remove any evidence of an investor’s claim from their record. As an example, one individual associated with a brokerage firm requested expungement 40 times, with arbitration panels granting such relief to that individual 35 times.

“To say that ‘expungement’ of customer claims from broker records is a major investor protection problem is an understatement. The result is that investors who are diligent enough to seek out information about brokers may be getting a woefully incomplete picture of the individual to whom they will entrust all or most of their nest egg,” said PIABA President Scott Ilgenfritz and the author of the study.

“What is supposed to be an extraordinary relief measure is now being sought and granted in roughly nine out of the 10 settled cases that we studied. This clearly indicates that the current expungement procedures are seriously flawed. Regulators need to step in and crack down on the granting of expungements, particularly in settled cases,” Ilgenfritz added.

In the report, PIABA calls on the Financial Industry Regulatory Authority (FINRA) to provide more and better training for arbitrators concerning their roles in the expungement process. In addition, the report says FINRA needs to play a more active role in arbitrators’ rulings on motions for expungement relief.

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