Can Brokers Erase Their Bad Records? The Truth About Expungement

Here’s something that might shock you: brokers can sometimes get their disciplinary records erased from public databases. It’s called “expungement,” and it’s one of the most controversial aspects of the securities industry’s self-regulation system.

If you’re researching a broker and their record looks suspiciously clean, they might have had negative information expunged.

What Is Expungement?

Expungement allows brokers to remove customer complaints, arbitration awards, and even some regulatory actions from their public records. It’s supposed to be reserved for cases where the information is “factually impossible” or “clearly erroneous.”

But in practice, the standards are often applied more loosely than they should be.

Why This Matters to You

When you look up a broker on BrokerCheck, you might not be seeing their complete history. Important red flags might have been erased, giving you a false sense of security.

This is why it’s important to:
– Ask brokers directly about their disciplinary history
– Get references from long-term clients
– Trust your instincts if something seems off

The Expungement Process

Brokers typically seek expungement through FINRA arbitration, often years after the original complaint or award. They argue that the negative information is hurting their career and shouldn’t be on their record.

The problem is that many investors don’t even know about these expungement proceedings, so they can’t object to having the information removed.

Protecting Yourself

Since you can’t rely entirely on public records, you need to do additional due diligence:
– Ask tough questions about past problems
– Get multiple references
– Start with small investments to test the relationship
– Trust your gut if something doesn’t feel right

The Bottom Line

Expungement is a reminder that the securities industry’s self-regulation system isn’t perfect. Don’t rely solely on public records when choosing a broker – do your own investigation and trust your instincts.

If you’ve been harmed by a broker with a “clean” record, an experienced attorney like Attorney Robert Wayne Pearce can help investigate their true history and hold them accountable for their actions.