PIABA, the securities-investor plaintiff's bar, issued an October 16th press release roundly criticizing industry self-regulatory rules allowing a broker to seek expungement of a customer-claim from her permanent record. PIABA's release relies on blunt statistics showing that about 60% of arbitration awards containing the word "expungement" granted that relief (with a higher 89-96% rate for awards entered on settlements). The group failed to mention, though, 2009 reforms requiring arbitrators to make an affirmative finding (after a hearing) that:
- The claim was factually impossible or without merit; or
- The broker wasn't even involved in the alleged wrong-doing; or
- The claim or allegations were false,
before arbitrators can recommend expungement.
See FINRA R. 2130. See also FINRA Reg. Notice 08-79. Moreover, those same reforms require a broker seeking expungement to notify FINRA and then take that arbitration award to a court for review and confirmation.
See FINRA R. 12805, 13805. Those reforms also required FINRA arbitrators to take and pass extra training specifically devoted to the new expungement rules. PIABA's press release didn't mention that the group was a principal proponent of the 2009 reforms. For its part, FINRA Dispute Resolution points out that broker records are expunged in less than 5% of its arbitrations. Because a securities arbitrator can't even recommend expungement without first holding a hearing and finding that the claims were false or the broker wasn't even involved, the real news in the PIABA study is that expungements were
denied a little less than half the time. The spin on a higher expungement rate in settled cases naturally does not mention that those settlements, of course, are agreements requiring the consent of the claimants themselves. So the next time you see an interest group's press release combining gross "statistical analysis" with hot-button words like "alarming," you might recall Mark Twain's admonition about statistics and ask for more context.
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