Thursday, May 21, 2020
I've written about the expungement process stockbrokers now use to suppress public information before. We know that brokers who receive expungements are statistically more likely to cause harm than the average broker--about 3.3 times as likely to cause harm. We also know that customers usually don't get much notice before an expungement hearing will held. We also know that brokers have used claims for nominal damages to cut costs and ensure that only a single arbitrator will hear the matter.
But I had not yet realized another problem with the system. Brokers often succeed at expunging information after more than six years have passed. Generally, a broker should not be able to secure an arbitration award recommending expungement after more than six years from the occurrence or event giving rise to the claim has passed. I suppose some arbitrators might buy an argument that the presence of the information in the public record creates a type of continuing harm and that the claim continues to arise. It's a bit like arguing that a scar from a twenty-year old injury means you should be able to sue about it because seeing the scar continues to harm you. Of course, many brokerage firm defendants simply don't care whether a former broker secures an expungement or not and will not even raise the issue with an arbitrator.
Brokers are securing arbitration awards removing information dating back many many years, some involving complaining customer who have now passed away. For example a broker recently secured an arbitration award (Docket Number 19-01639) recommending expungement for an incident dating back to the early 2000s. Although the award does not provide substantial information, the arbitrator concluded that an unauthorized trading claim on his record was "not true" on account of the following evidence:
The evidence (including a receipt confirming the return of the relevant stock certificates to the Customer) showed that the alleged trading and sale of securities was authorized by the Customer. Claimant sent her a letter explaining the proposed sale of her securities which was reviewed by the NPC's Compliance Department prior to being sent. According to Claimant's testimony, a while after her complaint was filed, the Customer retained an attorney to determine if there was a basis for filing a legal action against Claimant. The attorney met with Claimant and informed Claimant that there was no basis for any legal action by the Customer.
Apparently, the broker testified that the complaining customer hired a lawyer. And then the customer's lawyer met with the broker and told him that the customer had no basis for any claim against him. This strikes me as odd that an attorney hired by someone else would advise the broker about the Customer's options.
Of course, this doesn't mean that the complaining customer's claim was "false," it might just be that there were not any damages. I don't know. It all strikes me as very odd. And you can't ask the complaining customer, she passed away.
If you review the broker's BrokerCheck report today, you will see that a customer alleged he engaged in "UNAUTHORIZED TRADING OF SECURITIES, REGARDING SALE OF SECURITIES. NO DAMAGE AMOUNT SPECIFIC." You will also see his comment responding to the allegation:
ON NOVEMBER 1, 2002, IN A MEETING WITH CLIENT AND HER BENEFICIARY, WE DISCUSSED RE-POSITIONING HER STOCK PORFOLIO TO GENERATE MORE INCOME. WE AGREED ON EVERYTHING. CLIENT SIGNED FORMS TO REPOSITION THE PROCEEDS. CLIENT ASKED THAT THE SALES OCCUR AFTER MONDAY. AFTER NOT HEARING ANYTHING TO THE CONTRARY, I SOLD THE STOCK LATE ON TUESDAY, NOVEMBER 5, 2002.
If the broker completes the next step in the process and secures a court order confirming this arbitration award, the information will be deleted from public records. Ultimately, I don't know what happened--and the complaining customer has passed on so she can't tell you. But if you had to trust your life's savings to stockbrokers, would you want to know about some of these past complaints so you could take it into account? Do you want someone who will make absolutely sure you really want to execute a trade before doing it?