Arbitrators Explain Expungement More Thoroughly

FINRA arbitrators are starting to explain expungement decisions more thoroughly, getting rid of some of the mystery associated with removing customer disputes from brokers’ records. This can certainly be seen in recent awards. According to the Securities Arbitration Commentator, the number of explained decisions in cases where the parties

reached a settlement has increased to twenty-two percent through the first quarter of 2017 from fifteen percent last year.

“Arbitrators are feeling … in stipulated proceedings that they owe a greater explanation as to why they’re doing what they’re doing,” says editor of the Securities Arbitration Commentator Rick Ryder. “They are perhaps taking a view that a good explanation is a precedent. It helps the parties to have these explanations.”

Almost every brokerage contract has a mandatory arbitration clause. Customer complaints are resolved by a panel of three arbitrators, who either come from the industry or are public arbitrators. These arbitrators decide the cases, if they do not get settled before the final hearing, and also decide whether the dispute should remain on the broker’s BrokerCheck report.

Investor advocates often fight against the removal of such complaints, arguing it hides a broker’s past misconduct and deceives investors when they are looking for an advisor. Studies have shown that expungement is granted in nearly ninety percent of the cases it is requested. Investor advocates remain concerned about this number despite the fact that arbitrators are giving more detail in their decisions.

“Having an explanation is good, but I’m far more interested in a correct decision,” said Hugh Berkson, a principal at McCarthy Lebit Crystal & Liffman and former president of the Public Investors Arbitration Bar Association. “If the arbitrators have to explain themselves, maybe they think about the expungements a little bit more. One would hope that you would get better decisions.”

FINRA, under Rule 2080, mandates¬†that arbitrators articulate why they have granted expungement. In October 2013, the regulator released further guidance, telling arbitrators they “should ensure that the explanation is complete and is not solely a recitation of one of the Rule 2080 grounds or language provided in the expungement request.”

Regulatory bodies like these are designed to help investors; attorneys like those of us at The Frankowski Firm are here to do the same. If you have been a victim of securities fraud or broker negligence, we may be able to help. To learn more about our services, or to schedule a consultation with an experienced FINRA arbitration attorney, please call 888.741.7503, or fill out our contact form.