NEW YORK (MainStreet) Wells Fargo agreed to pay $125,000 to settle a complaint that accused the bank of fraud related to a broker's actions. The broker, Michele Kief in Naples, Fla., allegedly had nine client disputes registered under her name in the securities industry's regulatory database of complaints. Despite Kief's track record, the Financial Industry Regulatory Authority (FINRA) agreed to recommend deletion of the most recent complaint from her record.
"Overall, in the industry there has been an issue with misconduct due to the lack of dedication and commitment from many brokers," said Carla Cargle, a financial advisor based in Houston. "As with any profession, some people slip through the cracks who are just in it for themselves. The industry has tightened its compliance regulation though ultimately that will not stop someone who has criminal intent."
Unlike in the high profile case of Michele Kief and Wells Fargo that made Internet and television headlines, most settlements are kept confidential through expungement, according to a new survey.
The Public Investors Arbitration Bar Association (PIABA) study revealed that expungement relief was granted in 96.9% of the arbitration cases resolved by settlements or stipulated awards.
"The numbers indicate that from PIABA's perspective the current expungement procedure as it relates to cases resolved by settlement are not working as intended by FINRA and the SEC because FINRA is allowing brokers to bargain for expungement relief in settlement agreements," said Scott Ilgenfritz, an attorney and current president of PIABA. We want that to stop."
Some stockbrokers have taken a particularly aggressive approach to wiping their slate clean. According to PIABA, one individual associated with a brokerage firm requested expungement 40 times and arbitration panels granted such relief to that individual 35 times.
"When it is too easy for brokers to get complaints expunged from their records, investors who attempt to do the right thing and check out the broker's disciplinary record may end up making their decision based on incomplete information," said Rachel Weintraub, legislative director and senior counsel with Consumer Federation of America (CFA). "Worse, they may be led to believe that a broker has a clean disciplinary record when that is far from true. This leaves investors vulnerable to fraud and abuse."
PIABA is asking FINRA to make changes with respect to the expungment procedure and to get involved earlier in the process before a settlement.
The report requests that upon receipt of any motion for expungement relief and any settlement agreement, FINRA should provide those documents to the securities commissioner for the state in which the case was filed. And further recommends that amended procedures should provide for FINRA and the designee of the state securities commissioner to have the right to appear at the hearing on the motion for expungement relief and to oppose expungement relief when such opposition is appropriate.
"The expungement process for stockbrokers in arbitration cases is clearly broken today and needs fixing," said Attorney Jason R. Doss, incoming president of PIABA. "We have believed for some time now that expungements are a significant investor protection issue, but this new study from PIABA now documents precisely just how bad the situation is. This situation simply cannot be allowed to go unaddressed."
Investors who rely on public records to check out the background of their current or potential stockbrokers are, in many cases, unlikely to be getting a complete picture. Where to look to get the goods on your broker:
- 1. Pull a broker check record
- 2. Check for a CRD form filed with your state's securities regulator. "Information is available to the public but it's up to the client to do due diligence," Cargle told Mainstreet.
- 3. Search FINRA's awards database. "Look for your broker's name under arbitration award," Ilgenfritz told MainStreet.
- 4. Check securities arbitration commentary. "It will cost you but will be worth it in the long run when you're investing your entire life's savings," said Ilgenfritz.
- 5. Call the CFA
--Written by Juliette Fairley for MainStreet