Deleting Misconduct: The Expungement of BrokerCheck Records

63 Pages Posted: 9 Dec 2018

See all articles by Colleen Honigsberg

Colleen Honigsberg

Stanford Law School

Matthew Jacob

Harvard University Economics Department

Date Written: November 14, 2018

Abstract

We examine the economic consequences of a controversial process, known as expungement, that allows brokers to remove evidence of financial misconduct from public records. From 2007 through 2016, we identify 6,660 expungement attempts, suggesting that brokers attempt to expunge 12% of the allegations of misconduct reported by customers and firms. Of these attempts, 70% were successful. We show that successful and, to a greater extent, unsuccessful expungement attempts, are a significant predictor of future misconduct. Further, using an instrumental variable based on the random assignment of arbitrators, we show that a broker who receives expungement is more likely to reoffend than a broker denied expungement. This is consistent with the expungement process harming the ability for regulators and consumers to monitor brokers. By contrast, there is only limited evidence that successful expungements improve career prospects. This is consistent with anecdotal evidence that firms ask about expunged infractions during the hiring process, and suggests that expunging a misconduct does not entirely remove the reputational consequences of that misconduct.

Keywords: FINRA Rule 2080, expungement, broker misconduct, recidivism, BrokerCheck

JEL Classification: D18, K20, K22, K23, G24, G28, M14

Suggested Citation

Honigsberg, Colleen and Jacob, Matthew, Deleting Misconduct: The Expungement of BrokerCheck Records (November 14, 2018). Available at SSRN: https://ssrn.com/abstract=3284738 or http://dx.doi.org/10.2139/ssrn.3284738

Colleen Honigsberg (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305
United States

Matthew Jacob

Harvard University Economics Department ( email )

Cambridge, MA
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
84
rank
280,164
Abstract Views
355
PlumX Metrics