Deleting Misconduct: The Expungement of BrokerCheck Records

70 Pages Posted: 9 Dec 2018 Last revised: 21 Aug 2019

See all articles by Colleen Honigsberg

Colleen Honigsberg

Stanford Law School

Matthew Jacob

Harvard University Economics Department

Date Written: August 20, 2019

Abstract

We examine a controversial process, known as expungement, which allows brokers to remove evidence of financial misconduct from public records. From 2007-2016, we identify 6,660 expungement requests, suggesting that brokers attempt to expunge 12% of the allegations of misconduct reported by customers and firms. When these requests are adjudicated on the merits, arbitrators approve expungement 84% of the time. We show that expungements significantly predict future misconduct; brokers with prior expungements are 2.5 times as likely to engage in new misconduct as the average broker. Further, using an instrumental variable based on the random assignment of arbitrators, we show that brokers who receive expungement are more likely to reoffend than brokers denied expungement. We also present evidence that successful expungements improve long-term career prospects.

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 (August 20, 2019). 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

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