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PIABA Continues Campaign to Reform Broker Expungement Process

PIABA Continues Campaign to Reform Broker Expungement Process. PIABA, The Public Investors Advocate Bar Association, 501(c)(3) charitable organization, The Financial Industry Regulatory Authority, expungement, FINRA, broker-dealers, alternative investments
PIABA Continues Campaign to Reform Broker Expungement Process. PIABA, The Public Investors Advocate Bar Association, 501(c)(3) charitable organization, The Financial Industry Regulatory Authority, expungement, FINRA, broker-dealers, alternative investments

The Public Investors Advocate Bar Association, a 501(c)(6) non-profit international bar association, and its sister 501(c)(3) charitable organization, the PIABA Foundation, announced in an updated 2023 study that Financial Industry Regulatory Authority arbitrators grant “straight-in” expungement requests 90% of the time, despite FINRA’s instruction that customer complaints should be expunged only under “extraordinary circumstances.” PIABA believes that the recently enacted FINRA rules making expungement more difficult will improve the process.

According to PIABA’s study, which includes data collected from Jan. 1, 2019 through Aug. 31, 2023, straight-in expungements were granted in 2,259 out of 2,506 cases. A straight-in expungement case occurs when a broker initiates arbitration against their own member firm for the purpose of seeking expungement of a customer complaint.

Expungement requests are typically approved if neither the broker-dealer nor the complainant objects to the request. According to PIABA, this occurs because most investors are not aware of the need to object to expungement requests and broker-dealers have a vested interest in their broker records being expunged. Because of this, 92% of expungement requests are unopposed and continue as non-adversarial proceedings.

New FINRA rules adopted in October, however, could make the expungement process less lenient on broker-dealers. These rules include a requirement that expungement cases be decided unanimously by a three-member panel of public arbitrators with “enhanced expungement training” rather than the current sole arbitrator option.

The new rules will also cap the amount of time a broker has to expunge their record at two years after the closing of an arbitration or litigation, or three years if the complaint did not result in a formal proceeding. State securities regulators will also have to be notified of all requests and be given the opportunity to participate in the expungement process. When customers oppose expungement, PIABA’s study reports that arbitrators are over three times – 31% — more likely to deny expungement.

Additionally, PIABA announced it is expanding its pro bono expungement program which arranges for attorneys to provide free representation to investors who wish to participate and oppose expungement. The group is hopeful that the expansion will encourage more investors to oppose expungement when appropriate. PIABA also announced that it has partnered with the Alabama Securities Commission to offer a new training program for state securities regulators with the goal of facilitating collaboration among states.

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