Expunging Complaints Becomes More of a Crapshoot

A UBS Financial Services broker who was dogged by a customer complaint for over 16 years cleared his name this week, but lawyers caution that favorable expungement decisions are no longer a sure thing as arbitrators spend more time examining and explaining their decisions.

The case of Rolf Maile, a Las Vegas broker who has been with UBS for eight years and with Merrill Lynch for 14 years previously, appears to have been open-and-shut, according to the decision of the sole public Financial Industry Regulatory Authority arbitrator.

Maile met with the customer about 30 times before he elected in 2001 to invest about $20,000, or 30% of his portfolio, in a mutual fund, which was not named in the award decision. The investment rose 30% to $26,000, but when it retrenched to a still profitable $24,000, the customer sent a letter to Merrill objecting to his $2,000 loss.

Merrill investigated, found the complaint to be without merit and eventually requested that he move his account to another firm. Maile’s BrokerCheck report has been scarred with the single reference to the customer complaint for years.

The arbitrator, Laurel Gothelf in Las Vegas, wrote that the allegations were “clearly erroneous” and “factually impossible.”

“It really puts the broker in a bad position,” said Dochtor Kennedy, a lawyer in Broomfield, Colo. who specializes in expungement requests and represented Maile. “Anyone can make a complaint and the broker-dealer is required to report it and Finra continues to publish it.”

While some 90% of expungement requests are granted, according to data from the Public Investors Arbitration Bar Association (PIABA), the process can be time-consuming and costly. Brokers should expect to spend a minimum of $8,500 on the process to cover lawyer, filing and hearing session fees, and then wait six to nine months for results, Kennedy said. (Once an expungement from Finra’s Central Registration Depository System is approved in arbitration, it requires court approval.)

What’s more, expungement grants have become less of a sure thing in the wake of studies in 2013 and 2015 by PIABA showing that brokers and firms often condition settlements with aggrieved investors on the investors’ agreement not to oppose expungements. Finra has guided its arbitrators to investigate such conditional agreements but until recently the guidance has not made much of a difference, according to PIABA.

In the past few months, arbitrators have been offering much more detailed discussions of their evidentiary conclusions in expungement award notifications, casting light on how fact-specific and arbitrator-specific the process has become.

Just this week, a sole arbitrator in Detroit denied a request from independent broker Kathie Lee Foreman to expunge a customer complaint and request for more than $20,000 in compensation due to unsuitable investments and the alleged refusal of Sigma Financial Corp., her former broker-dealer,to cash him out despite four requests. The complaint was withdrawn as part of a settlement in late December, and the client did not contest the request.

Arbitrator Michael J. Malone, nevertheless, denied the expungement request. Foreman’s testimony, that among other things included statements that the customer had not asked her to cash out the investments, was “uncorroborated…presented (with) somewhat generalized descriptions of her communications” and suggestions that she may have been victimized by marks on her husband’s regulatory record.

Neither the client nor Foreman and her husband, Samuel, who was also named in the complaint, were represented in the arbitration by lawyers.

“There is no litmus test,” Kennedy said of the arbitration process. “There’s still a lot of steps that you can miss or you can blow up your own case.”