79 Pages Posted: 8 Jul 2020 Last revised: 27 Oct 2020
Date Written: June 8, 2020
Investors, industry firms, and regulators all rely on vital public records to assess risk and evaluate securities industry personnel. Despite the information’s importance, an arbitration-facilitated expungement process now regularly deletes these public records. Often, these arbitrations recommend that public information be deleted without any true adversary ever providing any critical scrutiny to the requests. In essence, poorly informed arbitrators facilitate removing public information out of public databases. Interventions aimed at surfacing information may yield better informed decisions. Although similar problems have emerged in other contexts when adversarial systems break down, the expungement process to purge information about financial professionals provides a unique case study.
Multiple interventions may combine to more effectively surface information and generate better informed decisions. In quasi-ex-parte proceedings, traditional attorney ethics rules must yield to a higher duty of candor. Yet adjudicators should not rely on duty alone. Adversarial scrutiny may emerge by designating an advocate to independently and critically engage in circumstances where no party has any real incentive to oppose an outcome. Ultimately, addressing adversarial failures may require a shift away from adversarial adjudication to a more regulatory framework.
Keywords: Securities Arbitration, Securities, Expungement, FINRA, Self-Regulatory Organizations, SROs, SEC, Stockbroker, Broker
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