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Financial Brokers Could Be Hiding Past Consumer Complaints

By Karen Anderson, WBZ-TV
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BOSTON (CBS) – The financial industry has come under a great deal of scrutiny in recent years. There is still concern, however, about a lack of transparency when it comes to some consumer complaints.

Damon Petraglia is careful about the people who handle his money. “It is very important for me to have somebody reliable and capable.” Damon is no average investor. He’s a private investigator who is often hired to check out brokers for his clients. He usually starts with the website for the Financial Industry Regulatory Authority, also known as “FINRA” This site allows someone to check any federally licensed financial professional. Public records list a broker’s licenses and where they’ve worked. But Damon found some critical information missing from this site.

Jason Doss of the Public Investors Arbitration Bar association refers to this situation as the “security industry’s dirty little secret.” A new study written by Doss’ organization found stockbrokers are able to keep complaints against them from being disclosed. Brokers have the right to request a complaint be “expunged” from their record if they felt it was false.

Federal guidelines say expungement is an “Extraordinary Relief”. But this study found this type of action is very common. Between 2009-2011, when cases were resolved by settlement, arbitrators approved requests to remove complaints from records 97% of the time. “This is a major problem that must be fixed,” said Doss.

If a broker’s record is wiped clean, there is no way for investors, regulators, or future employers to find out. This study found one case in which a broker requested expungement 40 times, and had it granted 35.

Doss said investors are sometimes given a settlement trade off. “There will be a provision that says in exchange for that money, the customer has to agree not to oppose the expungement request, and it just basically wipes it under the carpet.”

The federal agency overseeing this process said this study “underlines and emphasizes serious concerns.” Ed Gjerston of the Financial Planning Association responded, “We closely guard our reputations so if there’s something where we have complaints against us that are unwarranted or unfounded, we want to protect our reputation.”

It is a tough balancing act, particularly when the stakes are so high for investors. “If you pick a bad broker, you could lose your entire investment” added Petraglia.

This report caught the eye of Senator Ed Markey. He has now written a letter to the Securities and Exchange Commission, demanding changes in the system.

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