Ethical Concerns When Settlement Includes an Agreement About Expungement

Abstract

When a customer makes a complaint against his or her securities broker, the complaint may become a matter of public record and be made available to the public through the broker's BrokerCheck report provided by the Financial Industry Regulatory Authority (FINRA). FINRA established the BrokerCheck system to provide the public with information about the professional background, business practices, and conduct of brokers and brokerage firms.

Understandably, brokers generally attempt to keep as clean a record as possible because potential clients may use BrokerCheck to decide whether to invest with that broker. Potential employers may also look to BrokerCheck when deciding whether to hire a broker. To remove a complaint from BrokerCheck, the broker must seek expungement of the complaint. FINRA has established an elaborate set of procedures that must be followed when a broker wishes to seek expungement.

If a broker has settled the complaint with the customer, the broker may seek the customer’s cooperation in the expungement process. Over time, FINRA has made changes to its expungement procedures, which has created interesting ethical issues. This paper examines these expungement procedures and the ethical implications for a customer’s attorney when a broker seeks a customer’s cooperation in the process.

Keywords: Broker, Expungement, FINRA

JEL Classification: K22