Posts tagged ‘broker requirements’

February 28, 2014

Lazaro Writes Law Review Article on Broker Reporting Requirements

Christine Lazaro, Acting Director of the Law School’s Securities Arbitration Clinic, will publish her article, Has Expungement Broken BrokerCheck?, in MSU Journal of Business and Securities Law.  Here’s an abstract:

Stockbrokers are subject to one of the most comprehensive public disclosure regimes.  They must disclose substantial information about their backgrounds, their employment history, and their disciplinary history.  FINRA, the self-regulatory organization that regulates the brokerage industry, also requires that brokers disclose customer complaints and makes much of this information available to the public through an online database called BrokerCheck.  The allegations of wrongdoing remain on the broker’s record permanently, unless the broker succeeds at having customer dispute information expunged.  The broker is able to accomplish this by requesting that the arbitration panel that hears the customer dispute grant expungement, and then seeking confirmation of the arbitration award.

This paper examines the rules governing brokers’ reporting requirements and the process whereby customer dispute information may be expunged from brokers’ records.  There are a number of significant flaws with the current expungement process.  These flaws raise concerns about the integrity of the information made available through BrokerCheck.  Indeed, State regulators have attempted to intervene at the arbitration award confirmation stage to prevent information from being expunged from the system.  Thus far, these attempts and have been largely unsuccessful.  The system’s flaws also become apparent when customers settle disputes.  In those cases, when customers do not oppose a broker’s request for expungement, arbitration panels routinely grant the broker’s request.

To address these issues, I suggest that FINRA must continue its efforts to prevent brokers from bargaining for non-opposition to expungement requests as a condition of settlement.  Customers should be permitted to oppose a request for expungement even if they have settled their underlying claim with the broker.  I also argue that that FINRA’s arbitrator training may be ineffective as it is apparent arbitrators are disregarding the high standards governing expungement.  Accordingly, FINRA should implement procedures and tighter controls to ensure arbitrators are following the rules governing expungement.


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