In a California appeals court ruling that makes it easier for brokers to expunge customer complaints and disciplinary actions from their records, many feel it could have far-reaching implications for brokers everywhere, writes Dan Jamieson in an August 31st. article from InvestmentNews.com.

In an Aug. 23, 2012, decision, the California Court of Appeal for the First Appellate District in San Francisco has ruled that brokers may expunge their records under a principle of basic fairness, or equity. The ruling poses a direct challenge to rules imposed by the Financial Industry Regulatory Authority Inc. (FINRA) that require certain thresholds to be met before complaints are expunged.

The broker who brought the case felt that potential customers using Finra’s BrokerCheck reporting system, would cause him professional harm because of his record.

“The choice of a very narrow, rigid legal rule to assess the legal sufficiency of [the broker's expungement] petition — a choice that closed off all avenues to the court’s conscience in formulating a decree and disregarded basic principles of equity — was nothing short of an end run around equity,” the three-judge appellate panel ruled.

A Finra spokeswoman declined to comment.

In a court filing last year, however, Finra accused the broker of seeking “to sanitize his record and prevent regulators, brokerage firms and investors from learning of this history for what amounts to ‘time served.’

There were 17 complaints settled or arbitrated for total payments to customers of $831,000. In one of those cases, the broker at the heart of this case, personally paid $5,000 of the settlement, according to his BrokerCheck report.

Legal experts say the fight between Finra and the broker is far from over, writes Jamieson.

Many observers say the expungement question has grown in importance as more disciplinary information is disclosed. Customer allegations, as well as regulatory actions and arbitrations, are revealed to the public online via the BrokerCheck system.

The Investment News.com article concludes that in August 2010, Finra began disclosing all historic complaints, regardless of age. In the past, unproven allegations were not disclosed after two years. In addition, under a mandate in the Dodd-Frank reform law, Finra is considering disclosing exam scores, broker termination information and more historical data on the BrokerCheck system.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, represents clients nationwide. Call to speak to an attorney regarding your investment losses. For a free consultation on how to potentially recover those losses call: 888-760-6552, orr you may visit our website at: http://www.securitieslawyer.com.

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In a March, 2012, article for InvestmentNews.com, Dan Jamieson writes that industry observers are wondering why the Financial Industry Regulatory Authority Inc. (FINRA)has issued a proposal to disclose licensing exam scores on its BrokerCheck system.

Finra has requested comments regarding disclosing more through the disciplinary reporting system, including exam scores, broker termination information and more historical data.

Jamieson writes that the request, Finra Regulatory Notice 12-10, is part of a larger review of BrokerCheck mandated by the Dodd-Frank reform law. Industry commentators are confounded by the idea of publishing exam scores.

“I believe publishing test scores makes no sense for someone who has been in the business for over 25 years,” April Kvalvik, a broker with Bank of America Merrill Lynch, wrote in a comment letter. “As a CFP, I have mastered many complex areas in investing and financial planning. I do not think that scores from a 25-year-old test are relevant.”

“Such scores reflect only the knowledge of regulatory requirements at the time of the test and not investment knowledge or any relevant industry skills,” wrote David Wiley, president of Wiley Bros.-Aintree Capital LLC.

“In fact the very act of publishing such scores would be misleading, as it connotes validity … in selecting a broker,” he said.

“I would like the grades of all Finra and SEC employees, schools they attended, last ten years of employment, criminal history … bankruptcy filings and any financial judgments … made public,” wrote Catherine O’Brien, a representative at Crowell Weedon & Co.

The InvestmentNews.com article points out that Finra also is considering making the massive BrokerCheck database available to private vendors. Currently, it blocks automated download tools from accessing the system.

“It is important that Finra and the SEC make the data underlying these databases available for download in electronic, machine-readable format, so that nonprofit entities, as well as journalists and other investigators, are able to gain access and do sophisticated investigations using the information,” wrote Ellen Miller, executive director of The Sunlight Foundation.

Finra had no comment.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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