Here is how PIABA’s one-track mind operates: in a Report it just issued, PIABA laments the frequency with which registered reps are able to get customer complaints expunged from their records. The sole reason for this, PIABA concludes, is that the expungement process is broken, and/or is being gamed by brokers. It does not even enter the realm of possibility for PIABA that the real reason arbitrators are receptive to requests for expungement – arbitrators who, mind you, have had it drilled into them by FINRA that expungement is an “extraordinary” remedy – is that these customer complaints are, in fact, bogus, and deserve to be expunged. That they are false, they are factually impossible, they are figments of customer’s imaginations, and, therefore, don’t belong in CRD.
That is just a possibility that doesn’t exist in PIABA world, where there is no such thing as a baseless complaint, and where every arbitration that ends in a “zero” award for the customer necessarily was a mistake and an aberration of justice, rather than the appropriate application of law to fact by the hearing panel.
Putting aside the predictable slant that always colors PIABA’s viewpoint, let’s look at the specific criticisms that PIABA lodges in its Report.
First, PIABA complains that brokers have “corrupted” the expungement process by requesting $1 in damages, a maneuver that, as dictated by FINRA’s Code of Arbitration Procedure, reduces the filing fee from $1,575 (which FINRA charges in cases where no monetary damages are sought or the damages are “unspecified”) to $50. It also reduces the number of arbitrators from three to one. I have to be honest, I don’t see how this serves to “corrupt” the system. There is simply nothing nefarious about wanting to reduce the filing fee.
And as for the number of arbitrators, PIABA couldn’t conjure up even a half-baked argument that a three-person panel is somehow more apt to deny an expungement request than a one-person panel. The reason, of course, that it cannot make that argument is because the data just don’t support it. In all the charts packed into PIABA’s Report, conspicuously absent is one comparing the results of one-person panels vs. three-person panels. All PIABA does, then, to support its thesis is include a misleading header in this section of its Report, extolling that the $1 demand somehow “Contribut[es] to The High Expungement Rates” without bothering to explain why that is supposedly the case. Ultimately, PIABA’s complaint distills down to whining about what this procedural manuever has cost FINRA in lost revenue, as if that really matters to PIABA.
Second, PIABA is unhappy that requests to expunge customer complaints are often not opposed by anyone, including the complaining customer! Even though PIABA recognizes that FINRA requires that complaining customers be apprised of the expungement request, and invited to participate in the proceeding, it begrudgingly acknowledges that the vast majority of such customers decline to do so. Somehow that is the registered rep’s problem? If these complaints have such validity that expungement amounts to a travesty of justice, I don’t think it is unfair to contemplate that the complaining customer actually show up – even if just by phone – to defend the legitimacy of his or her complaint. PIABA, of course, disagrees with me. In PIABA world, it is too much to expect a complaining customer to testify under oath about their own complaint. Indeed, among PIABA’s proposed solutions to the supposed expungement crisis it has identified is that an Advocate be created by FINRA or the SEC to play the role of complaining customer, i.e., to actually show up at the hearing and testify about the efficacy of the complaint. Seems to me it would be lot easier, and a lot more logical, for the actual customer to assume this obligation, rather than create some group that would have to investigate the complaint from scratch…which necessarily means, of course, talking to the same customer that PIABA wants to shield from any meaningful participation in the process.
PIABA also complains that not only does the complaining customer not bother to defend the expungement request, in most instances the registered rep’s broker-dealer doesn’t, either. That may be true, but it is not indicative of any unfairness in the process. BDs are not the source of the complaint in the first place; they are simply required by the rules to amend Form U-4 to disclose the complaint. It doesn’t matter how meritless a complaint may be, if it meets all the requirements for disclosure – and being meritorious is NOT one of them – then the whole world gets to see it. It makes perfect sense, therefore, that BDs are happy to see bogus complaints get expunged.
PIABA’s next complaint is also the weirdest: it doesn’t like the fact that reps seeking expungement rank highest the arbitrators most likely to grant the request. That is not gaming the system. That is not collusion. That is simply how arbitration works. Each party to the case reviews the pool of potential arbitrators and decides who among them would be the most receptive to their case, ranking those persons the highest. When I handle an expungement case, naturally, when possible, I select arbitrators with a track record of having previously granted expungement requests. That hardly guarantees I will prevail, however; it simply means that I am trying my best to identify a receptive audience. This is the very same thing that PIABA lawyers do when they rank panelists, they strike people who have a historic tendency of denying claims, and rank highest the arbitrators who tend to be claimant-friendly. To suggest that this is somehow unscrupulous is to ignore how arbitration is designed to work.
Which brings me to the stupidest and, frankly, to me, as a lawyer who represents brokers seeking expungement, the most insulting complaint in the Report. PIABA makes this bold statement: “Expungement requests are being granted based upon one-sided and possibly false evidence presented to arbitrators.” Let me focus on the “possibly false evidence” bit, because it is flat out BS. Nowhere in its Report does PIABA actually cite any matter in which false evidence was introduced to obtain expungement, even in those cases where the request was unopposed. Rather, what PIABA does is make the fuzzy argument that “[s]ince brokerage firms do not oppose brokers’ expungement requests 98% of the time and customers oppose expungement in only 13% of cases, it logically follows that there should be procedural safeguards in place to prevent brokers from presenting one-sided, false or misleading information to arbitrators.” In other words, unless PIABA’s plan is adopted it is possible that someone may use false evidence to support an expungement request. PIABA has simply invented a non-existent problem here, merely so it can recommend a means of addressing it, i.e., the creation of the Advocate, that PIABA favors. It is beyond cavalier to suggest that lawyers who represent brokers have relied on false evidence without providing the slightest bit of proof to substantiate such an outrageous allegation. But, as we know, that’s how PIABA rolls.
Given, as I said, the fact that brokers are obliged to publicly report even blatantly false customer complaints, which can and do have a dramatic impact (and right in the pocketbook, at that) despite their falsity, expungement is a necessary and proper tool for registered reps to rid such drivel from their records. It doesn’t matter that more of these cases are being filed now than historically, or that a couple of law firms seem to specialize in bringing them, or that multiple false claims can be addressed in a single hearing. (PIABA points out that in one matter, 24 false customer complaints were expunged in a single hearing. Sorry, PIABA, but that case happened to have been handled by my partner, and I guarantee you that she didn’t rely on “false evidence.”) Unless and until the playing field is leveled, and customers have to establish that their complaints have merit before brokers are obligated to report them, expungement is absolutely needed.