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 [fusion_builder_container hundred_percent="yes" overflow="visible"][fusion_builder_row][fusion_builder_column type="1_1" background_position="left top" background_color="" border_size="" border_color="" border_style="solid" spacing="yes" background_image="" background_repeat="no-repeat" padding="" margin_top="0px" margin_bottom="0px" class="" id="" animation_type="" animation_speed="0.3" animation_direction="left" hide_on_mobile="no" center_content="no" min_height="none"][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.
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