It's Easy for Brokers to Erase Complaints From Their Records

BrokerCheck is a Web site maintained by the Financial Industry Regulatory Authority, the main securities regulator. Anyone can plug in the name of a broker and immediately see information, ranging from the mundane (employer history and licensing exams passed) to the salient (fee disputes or disciplinary actions) to the downright salacious (shoplifting or DUI charges). Sounds like information investors should have, right? Well, according to an attorney-led investor-advocacy group, much of that information can be erased at the broker's request. The 2007 survey conducted by the Public Investors Arbitration Bar Association looked at the 200 investor/broker settlements that were arrived at last year without any regulatory oversight. Its findings? A whopping 98% of brokers who requested an expungement got one.

FINRA, which is supposed to oversee expungements, says the survey isn't representative because it looked at just 2% of 2006 cases. But that 2% represents all the cases settled between brokers and clients in which an expungement was requested. In fact, the Securities and Exchange Commission had already noted, in 2001, that expungements in these so-called stipulated settlements were an area of "particular concern," especially given that they were typically granted without a hearing. Indeed, the recent survey showed that in 71% of expungements granted, no hearing was held.

Professor Tom Hazen, of the University of North Carolina's School of Law, agrees the number of expungements seems high. He warns that investors could lose confidence in a broker's clean slate. So don't give up doing your homework with BrokerCheck, but take it with a grain of salt. The best recommendation for a broker may still come from word of mouth.