Claimants lawyers have long complained that brokerage firms should not be permitted to insist, as a condition of settling a dispute, that the customer must cooperate in having the broker’s bad acts expunged, i.e., scrubbed from the public record. Expungement essentially amounts to a declaration that the broker did nothing wrong. But a declaration that the broker did nothing wrong is tantamount to an implication that the customer and his or her lawyer brought groundless charges against the broker. Of course, this usually is a lie. The broker may have been a complete weasel, yet the customer is forced to pretend otherwise if he or she wants to receive the badly needed settlement money. The result is that future potential customers, who might have steered clear of that broker had they not been deprived of important information, may instead trust the broker with their money.
FINRA has finally taken steps to deal with this problem. It announced today that it will file with the SEC a proposed new rule that would “prohibit firms and associated persons from conditioning or seeking to condition settlement of a dispute with a customer on, or otherwise compensating the customer for, the customer’s agreement to consent to, or not to oppose, the firm’s or associated person’s request to expunge the customer dispute information from FINRA’s Central Registration Depository system.” This is good news. We hope the SEC cooperates.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA. Hugh is rated AV® Preeminent™ by Martindale-Hubbell®.
He obtained a business degree in Finance from the University of Texas at Austin in 1989, and is a 1994 graduate of Case Western Reserve University School of Law, where he was a member of the Order of the Barristers and received both the American Jurisprudence Award, (National Mock Trial) in 1993 and the Jonathan M. Ault Mock Trial Prize for 1993-1994.