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A fight is brewing over proposed changes to FINRA’s Central Registration Depository (CRD) expungement procedure. The SEC, FINRA, and the Public Investors Advocate Bar Association (PIABA) are at odds over whether the expungement procedure has become too liberal. FINRA is responsible for the CRD — the database behind BrokerCheck.
“FINRA is committed to limiting the expungement process so that it operates as intended – as an extraordinary remedy, only appropriate in limited circumstances when the CRD information is clearly inaccurate,” the self-regulatory organization recently said in a statement. Others are advocating for a more restrictive process.
Perhaps the proposed improvements should also address situations in which an “extraordinary remedy” isn’t required in the first place.
The FINRA BrokerCheck system, and by extension the SEC’s Investment Adviser Public Disclosure website, was created with a positive goal in mind: to safeguard investors from unscrupulous brokers and investment advisors (whom I will refer to as “advisors” for simplicity).
With such a large number of advisors in the market, there are likely to be a few rotten apples, which is why a system like BrokerCheck is useful. BrokerCheck’s existence is not the source of our dissatisfaction. However, it does harm advisors when publishing disclosures of little value to investors and highlighting ancient, relatively unimportant missteps.
We’ve seen more than 2,000 BrokerCheck (and/or CRD) records. We’ve seen it all — both pristine records and others that exceed 50 pages.
In specific cases, any reform under consideration should make the expungement process easier, not tougher. To challenge specific sorts of disclosure items, a “common person” review process should be implemented. Would the average individual believe that this was vital information to give in order to protect the investing public? (Note that this is a less expensive and speedier option than the standard expungement procedure.)
Do you have a meritless disclosure on your BrokerCheck, IARD, IAPD, or CRD record?
Give us a call today at (303) 952-4025 or contact us for a complimentary consultation.
Auction rate securities (ARS) settlements are a common example of the disclosure process failing in the past. ARS complaints were almost always settled by the advisor’s firm (without input or financial contribution from the advisor). The client was almost always made whole, and the client was typically more than pleased to engage with the same advisor in the future. ARS-related customer disputes and settlements were reported as required by FINRA Regulatory Notice 09-12 and typically not out of any customer’s resentment toward the advisor. Regardless, advisors whose customers’ ARSs were repurchased by the firm now have disclosures on their public records.
For those of us who were there when ARSs were in use — and who know how they were used before the auction failures and how the related issues were usually managed — the issue may not be of concern (from an advisor-assessment perspective). A less informed investing public, on the other hand, might not view it that way. Customers may simply see an advisor with a spotty record, despite no wrongdoing on the part of the advisor.
Perhaps you’re not convinced by that example and believe that such information should still be made public. Here are some other examples:
One advisor’s record showed that he committed the reportable act of “stealing” about 20 years ago when they were in their early 20s. The advisor admits to paying for a bar tab with a credit card that he found in the bar, as highlighted in the disclosure’s comment section. Yes, that was stealing. it was also a foolish thing to do, but despite the fact that he has no other stain on his record, he still has to explain the theft to clients, employers, and possible partnering firms more than 20 years later. I believe we can all agree that his ill-advised night of free beer is unlikely to endanger his present clients.
Another example involves an advisor who was browsing a bookstore for a potential purchase when his phone rang. He answered it, but the signal was weak. So he proceeded to the front of the business and stepped outside for a few moments to conclude the call. He did, however, take a book with him. He didn’t go anywhere, mind you. He was standing there on the phone, intending to return to the bookstore as soon as his call ended. Unfortunately, the store had a zero-tolerance policy for shoplifting. So his act of stepping outside with a book was considered theft. He still needs to explain a book “Heist” from the previous decade after all these years!
Do you have a meritless disclosure on your BrokerCheck, IARD, IAPD, or CRD record?
Give us a call today at (303) 952-4025 or contact us for a complimentary consultation.
Two other, unconnected persons were convicted guilty of theft more than 20 years ago, long before either was an advisor. A $3 beef sandwich was stolen from a convenience store by one advisor. The other robbed a gas station of $8 in gas. Yes, both of them technically committed a crime that they shouldn’t have. However, decades later, both have to explain to clients why they have a “criminal” mark on their BrokerCheck record, and potential clients might have noticed the criminal disclosure and just moved on to another advisor without further investigation.
We’re not suggesting that expungements should be made easy in general, though there are valid points to be made about how the current process could be improved. We also know that trying to “repair” all of the system’s problems may be impossible. After all, in any such argument, there are numerous voices to be heard.
What we would say, though, is that an outstanding advisor career should not be marred by tiny, often juvenile mistakes that were made long before the individual even became an advisor.
Our disclosure expungement services can help advisors and wealth managers remove meritless or false Form U4 or Form U5 disclosures from their public records, such as CRD, BrokerCheck, IARD, or IAPD records. AdvisorLaw has removed over 2,000 disclosures in the form of customer disputes and investor complaints, terminations, criminal disclosures, tax liens, and more.
If you’d like to learn more about our services, please complete the form below for a complimentary consultation.