• Basic Membership Access to Journal, Shadow Stock portfolio & monthly updates for stock screens
  • A+ Investor Full access to AAII.com, Journal, and a power data suite for investment ideas
  • AAII Platinum Full access to all of AAII's model portfolios and premium services at a significant discount
  • Dividend Investing Newsletter and model portfolio that focuses on dividend growth
  • AAII Growth Investing Find secular growth stocks poised for outperformance regardless of macroeconomic conditions.
  • Retirement Investing Discover trusted strategies for every stage of retirement. Get actionable insights and resources for smart retirement planning.
  • Sentiment Investing A research-driven newsletter with 10+ signals decoding sentiment across retail and institutional behavior.
  • Stock Superstars Report Get stock ideas inspired by the market's leading professionals
  • VMQ Stocks For the value investor looking to harness academic research in an actively managed portfolio
  • Bits and Bips Newsletter delivering insights on linking traditional finance, macro trends and cryptocurrency opportunities to help investors build stronger, more diversified portfolios.
All premium products come with free basic membership.
Explore All Membership Options
Join Now
Dispatches

Tougher for Brokers to Remove Complaints From BrokerCheck

Brokers can no longer expunge customer complaint data from the Central Registration Depository System without a court order, thanks to a rule change approved by the Securities and Exchange Commission.

Brokers can no longer expunge customer complaint data from the Central Registration Depository (CRD) System without a court order, thanks to a FINRA rule change approved by the Securities and Exchange Commission (SEC) in July 2014. The CRD System provides regulatory and background data to the publicly accessible BrokerCheck database.

BrokerCheck lists a broker’s registrations or licenses, industry exams he or she has passed, previous employment, customer disputes, and regulatory or disciplinary events. The database provides information on a firm’s history (including any mergers, acquisitions or name changes), active licenses and registrations as well as arbitration awards against it and regulatory or disciplinary events. It is a website the Securities and Exchange Commission (SEC) suggests individual investors visit to research a broker or a firm. BrokerCheck is free and is located at www.finra.org/brokercheck.

Once information is expunged from the CRD System, it is permanently deleted and no longer displayed on BrokerCheck. Knowing this, brokers have an incentive to ensure their BrokerCheck records are as clean as possible. This led to a practice of brokers refusing to settle claims against them unless a client either outright agreed to allow their complaints to be removed from the CRD System or at least didn’t oppose requests by the broker to do so. Clients agreed to such requests in order to speed up the settlement process.

The new rules ban this practice. Brokers can no longer use settlement agreements to have complaints removed. Our understanding is that it will not apply retroactively to complaints that have previously been expunged, however.

Though there are still concerns about the type of information being omitted from BrokerCheck—in March 2014, The Wall Street Journal found 1,600 brokers with criminal or bankruptcy records not listed in the database (and FINRA has agreed to resolve this issue)—we think it is a useful resource for conducting a background check. The SEC also recommends visiting its IAPD website (www.adviserinfo.sec.gov) and state regulator websites (www.nasaa.org). We further suggest typing the adviser’s name into an Internet search engine, such as Google, to see what comes up.

Source: “Expungement of Customer Dispute Information,” FINRA Regulatory Notice 14-31, July 2014.

Discussion

Barry Estell from KS posted over 11 years ago:

Nonsense. Expungement has always required a court order which is automatic when an arbitration panel grants a broker's motion to expunge and issues a award to that effect. The granting of the award by the panel is also pretty much automatic when a case is settled because defrauded customers seldom contest the issue. They have nothing to gain and much to lose. The new rule simply adds another layer of obfuscation by FINRA in its continuing effort to protect its members from the consequences of their conduct. The rule says only that expungement can't be a formal condition of settlement. OK, its not formal but they won't settle unless you agree to not contest an order to expunge. If a customer refuses to settle on those terms, he or she faces a hearing with a 10% to 40% chance of recovering 30% to 50% of losses; not a good bet. You do your readers a disservice by adopting the big industry lie that they can get a fair hearing in an industry dispute forum.


You need to log in as a registered AAII user before commenting.
Create an account

Log In

Get your free copy of our special report analyzing the tech stocks most likely to outperform the market.
Download the FREE Report Here: