People on Wall Street get lots of perks, but an underappreciated advantage of working in the industry is the ability to make unseemly warts on your regulatory record vanish into thin air.
This now-you-see-it-now-you-don't benefit, known as expungement, makes a mockery of the official records of its beneficiaries and leaves the public thinking that a lot of financial types with black marks are actually problem-free.
I was gobsmacked to come across the most recent example of this sleight-of-hand. On Jan. 17, a three-person panel of New York arbitrators told a former broker that he could wipe out 11 customer complaints. If he's able to confirm the award with a court, the complaints will be gone and his record will be spotless.
It's "the most extreme expungement abuse I've seen," said Craig McCann, who comes across broker records regularly in his job as an expert witness at Securities Litigation & Consulting in Fairfax, Va. Only 7 out of every 10,000 brokers have that many settlements and awards, McCann said, referring to research his firm released last year.
The former broker is Joseph La Ferla, Jr., who set up an investment advisory firm in Garden City, N.Y., in 2015. (He's a "former" broker because he no longer needed a broker's license when he switched from working for UBS (UBS) to being an investment adviser.) According to the arbitrators' decision, he gave credible testimony "that he was not involved" in the conduct that led 11 of his customers to receive a total of $647,950 in awards and settlements between 1987 and 1991.
La Ferla told me in a brief telephone interview that his former partner was kicked out of the business for behavior that hurt their mutual clients. He said that once the partner was thrown out, the unhappy clients added La Ferla's name to complaints that hadn't previously targeted him.
A little background. To get an expungement, a broker has to file a claim with the arbitration operation overseen by the Financial Industry Regulatory Authority, known as Finra. Almost all investor complaints land in Finra arbitration because investors are forced to arbitrate in lieu of using the courts. If a broker winds up with a ding on his record when a case is concluded, he can go back to the panel and ask for it to be removed. Way too often, those efforts succeed.
There are a couple of unusual things about La Ferla's expungement request. One is that he wanted so many cases deleted at once. The more typical expungement request involves a single case that the panel already is familiar with. It's "extremely rare" to see multiple expungement requests at one time, according to Finra spokeswoman Michelle Ong, who said Finra doesn't comment on specific determinations by arbitrators.