Excel at the Job Aug 04 2010

How to Scrub a Dirty BrokerCheck Record

By kyle stock

Related: Brokers Fear New FINRA Rules Will Hurt Business, Careers

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On August 23, the Financial Industry Regulatory Authority will release a flood of old complaints and arbitration awards onto the records of U.S. stockbrokers.

Investment professionals are scrambling to deal with the potential damage, specifically fighting to clear meritless complaints from their records.

There are three paths to redemption for a broker with a tarnished record: comment, dispute and expungement.



Comment

An active broker can add a statement explaining their side to any gripe via the "uniform" documents filed by their own firm, the same documents that FINRA uses to fill out BrokerCheck entries. Brokers that have left the industry can post their comments directly to FINRA. Forms for comments can be found here.



Dispute

An investment professional can also get a BrokerCheck report altered by disputing a complaint with FINRA. The regulator will investigate the matter and change the record according to what it finds out. However, FINRA has tight restrictions on what types of grievances can be argued in this way. Typically, the regulator entertains complaints about misspelled names and incorrect dates. More "subjective" grievances must be addressed with a formal (and expensive) expungement request.



Expungement

Since FINRA changed its expungement rules in 2004, it has become harder for a broker to clear an accusation. In 2005, courts ordered some 1,012 charges cleared from the files, a figure that dropped to 87 last year. But in the first half of 2010 -- the runup to the new filing rules -- expungement orders climbed 29%.

To be successful, a broker has to prove one of three things: that the complaint is factually impossible; relies on false information; or relates to a transaction in which the accused was not involved. Those who think they have a chance, should go through the following steps:

1. Send to FINRA a written request for an expungement along with all relevant documents, including any settlement agreement or arbitration award. Mail the documents to:

Rule 2080 -- Expungement Notice/Waiver Request

FINRA Registration and Disclosure Department -- 3rd Floor

9509 Key West Ave.

Rockville, MD 20850

2. The process may require a hearing, either in person or via teleconference. Preparing for the hearing involves nothing more than having a good working knowledge of the case.

3. If an arbitration panel rules in favor of the broker, he or she still must file a formal request for expungement with a court and name FINRA as a party to the case. If FINRA disagrees with the request, it may still fight the expungement at this step. If the court orders the charge expunged, FINRA will then remove it from its records.

Mark Astarita, a New Jersey-based securities lawyer, said the entire process costs at least $2,000 and takes 14 to 21 months. "It's not easy," he said. "Over the years, FINRA has made it increasingly difficult to remove anything. [The new filing rule] isn't going to make it any better."

However, brokers are also facing a pile of old complaints and legal actions that they can't do anything about. Astarita, for example, has a number of clients who have started to sweat decades-old charges from college bar fights.

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Longtime brokers say that the best way to address these issues with clients is head-on. If an investor asks about a ding on the FINRA record, speak about it openly and honestly.

And those that bring to light any bets that may be stinking up a client portfolio, have a better chance of avoiding complaints altogether.

Write to Kyle Stock

Related: Brokers Fear New FINRA Rules Will Hurt Business, Careers




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