By Hal M. Bundrick
NEW YORK (MainStreet) ¿ When hiring a financial advisor, investors are told to "do their research" by using public databases such as BrokerCheck to search for past complaints and compliance infractions. But advisors may have already wiped the slate clean.
The Public Investors Arbitration Bar Association (PIABA) studied more than 1,600 arbitration cases in which the word "expungement" appeared and found that from January 1, 2007 through mid-May 2009, broker records were scrubbed in 89% of the cases resolved by stipulated awards or settlements. Even more recently -- since mid-May 2009 through the end of 2011 -- expungement relief was granted in nearly every instance: 96.9% of cases.
PIABA found one broker who requested expungement 40 times, and arbitration panels granted a clean record to that individual 35 times. Financial advisors seeking expungement are looking to remove investor complaints from the Central Registration Depository (CRD), the official database accessed by the public through state securities offices and FINRA's BrokerCheck program.
"To say that 'expungement' of customer claims from broker records is a major investor protection problem is an understatement," says Scott Ilgenfritz, president, PIABA. "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. 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."