Thursday, October 10, 2024

Expungement Pipeline Remains Large

Although FINRA has changed its rules to deal with abuse of the expungement process, the new rules only apply to claims filed after October 16, 2023.  There are still claims in the pipeline that were filed before then.  For example, an award recommending expungement of twenty nine different complaints recently appeared on FINRA's website.  That case was filed on October 13, 2023--three days before the reforms designed to stop abuse went into effect.

Because he already had a pending expungement claim, the broker, Matthew S. Buchsbaum, may have been able to expunge a customer complaint arriving after the deadline.   The award also explains that the arbitrator, Laura Carraher, granted an unopposed Motion to Amend the Statement of Claim on July 18, 2024.  The amendment added an additional occurrence to the long list of claims being expunged.  The award itself is fairly sparse on details.  It doesn't reveal when the additional customer complaint arrived or the details of it.  Given the ability of counsel to identify so many prior customer disputes on the broker's record, it was probably a customer complaint that emerged after October 16, 2023.  But the award doesn't give that level of detail, so there is no way to know.

As far as I know, this is probably the new record holder for the most claims expunged in a single arbitration award.  I covered this process in a law review article published in 2020.  At that time, the record holder was Gregory Brian VanWinkle who managed to expunge 24 complaints in a single hearing.  So, congratulations to Mr. Buchsbaum and UBS Financial Services Inc. for taking the title with an award expunging 29 complaints at once.  Someone should create a plaque to memorialize the achievement.

The award illustrates so many problems with the expungement process.  None of the customers whose complaints were up for review participated in the expungement hearing.  It's not clear exactly how much notice the customers had or what form it arrived in.  All the award says is that on August 13, 2024 the claimant told the arbitrator that they had been served with the Amended Statement of Claim and notice of the date and time of the expungement hearing.  The hearing occurred on September 5, 2024.  That's less than 30 days after August 13th.  Now, the award does not reveal how much time the customers actually had--it just states that the claimant told the arbitrator that customers had been served on August 13th.  

There is no reason to think anything approaching an adversarial process occurred in this expungement hearing.  Bressler, Amery & Ross, the firm that represented Matthew Buchsbaum against UBS regularly represents UBS.  The award says that UBS did not participate and did not oppose the award.  Maybe a state regulator using its investigative powers could figure out whether UBS paid the bill for Bressler's services in connection with the hearing.  Indeed, a different Bressler, Amery & Ross lawyer previously represented both a claimant and UBS at the same time in a FINRA expungement proceeding.  I assume UBS paid the bill for that one.  

Were these expungements righteous?  There is no way to know and no reason to have confidence that these kinds of arbitration awards are reliable ways to figure out the truth.  If all you know about a broker is that they have had an expungement, you know that they are 3.3 times as likely to attract future customer complaints as a random broker.  It would be much better if these expungement questions were handled outside of arbitration and in a way that allowed FINRA and the SEC to review what happens.

https://lawprofessors.typepad.com/business_law/2024/10/expungement-pipeline-remains-large.html

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