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Expungement Warning: Lawyers are Selling Advisors False Promises

By Rita Raagas De Ramos November 13, 2018

Lawyers who regularly but selectively represent brokers for the expungement of disclosure records are warning of ambulance chasers who aggressively solicit broker clients claiming they can accomplish the expungement in exchange for a hefty sum.

“These lawyers are scouring the CRD to look for anybody who has a number of hits, and they send them an email or give them a call promising they can expunge the records,” according to Dennis Concilla, Columbus, Ohio-based head of Carlile, Patchen & Murphy’s securities litigation and regulation practice group.

Concilla is referring to the disclosure events listed in brokers’ Central Registration Depository, which are available in BrokerCheck.

“I’ve been getting dozens of calls from brokers who are being approached by these lawyers,” Concilla says, without identifying the law firms.

Based on information shared with Concilla by the brokers who have been solicited, he says those lawyers charge as much as $3,000 a month until the case closes, which those lawyers estimate at around 14 months.

Concilla says his problem with those lawyers is they are “selling a false promise” because “no one can guarantee they can get a broker record expunged.”

Lawyers who aggressively solicit broker clients for disclosure expungement cases are selling a false promise.
Dennis Concilla
Carlile, Patchen & Murphy

Many of the disclosure events of the dozens of brokers who have contacted Concilla for a second opinion or for guidance after being solicited by the other lawyers “are not expungeable,” according to Concilla. Examples include disclosures about the brokers’ previous bankruptcy or previous tax liens.

“I’m speaking to someone right now who is saying another lawyer said he could get the records expunged, and I’m looking at the records, and frankly, it’s a train wreck,” Concilla says. “He has three to four customer complaints where they paid out over $1 million.”

Concilla says it’s a misconception that, based simply on statistics, expungement cases are easy to win. On face value, the odds might look good: Expungements were granted in 87.8% of cases involving stipulated awards or settled customer claims between 2012 and 2014, according to an October 2015 study from the Public Investors Arbitration Bar Association.

But “the main reason over 80% of the expungement cases that are filed are granted is the lawyers who typically succeed are very selective in the cases they take on,” Concilla says. “I turn down more than I file.”

In guidelines Finra issued to arbitrators and updated in September 2017, the self-regulator identifies three potential “narrow grounds” for expungement of broker records:

  • the claim, allegation or information is factually impossible or clearly erroneous;
  • the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
  • the claim, allegation or information is false.

“Expungement is an extraordinary remedy that should be recommended only under appropriate circumstances,” according to the guidance. “Customer dispute information should be expunged only when it has no meaningful investor protection or regulatory value.”

The fees being charged by those lawyers are also too steep, Concilla insists.

Think about the quagmire this presents for investors. Their guard is down because the broker has an expunged record. They get financially shish-kebabbed.
Andrew Stoltmann
Stoltmann Law Offices

“If you file an expungement case, depending on the complexity, it would typically run $5,000 to $10,000 [in cost] depending on the complexity, the number of items, whether we have the cooperation of the complainant, whether it is an industry complaint or a customer complaint,” Concilla says.

Yet Concilla stops short of calling those lawyers unscrupulous.

“It’s not unethical. Although promising to expunge a disclosure that is not likely to be expunged is certainly misleading,” Concilla says.

Andrew Stoltmann, the immediate past president of Piaba, verifies the existence of those types of lawyers.

The Chicago-based lawyer at Stoltmann Law Offices and current Piaba director highlights the other side of the problem stemming from such ambulance chasers.

“There are law firms out there right now, including one in Denver, who are heavily soliciting brokers to go back to 10, 15, 20 years [of disclosures] and expunge these complaints,” Stoltmann said at the Practicing Law Institute’s securities arbitration conference in New York in September.

When those lawyers succeed in getting the brokers’ records expunged, investors suffer because they are left clueless about the brokers’ now-expunged records, according to Stoltmann.

“Think about the quagmire this presents for investors – mom and pop investors, maybe they finally check BrokerCheck and they see a broker with no complaints in his or her record or maybe only one or two because those complaints have been expunged,” Stoltmann said.

“You have a retail investor who walks right into the hands of a financial predator with their guard down because they have a clean record. They get financially shish-kebabbed,” he added.

Dennis Concilla

Carlile, Patchen & Murphy’s Concilla says “responsible lawyers only bring cases where the brokers deserve to get their records cleared.”

“There are very specific expungement rules. If you don’t meet that criteria, then you’re not entitled to expungement,” Concilla adds.

Concilla believes there are more lawyers aggressively soliciting broker clients for expungement cases because Finra has brought more attention to the BrokerCheck system in recent years as part of its investor protection initiatives.

In 2015, Finra launched a national ad campaign promoting BrokerCheck. The television, cable and digital ads created by Ogilvy & Mather featured examples of people acting without conducting any background research. Viewers were urged not to make “leap-before-you-look mistakes when choosing a broker.”

FA-IQ reached out to Finra to ask if there are any rules that prevent lawyers from proactively seeking and bringing expungement cases to the self-regulator’s arbitration forum, if Finra is bothered by this proactive solicitation of expungement cases by certain lawyers, and if Finra discourages brokers from taking these offers.

Finra declined to comment for this article, but a spokeswoman directed FA-IQ to the self-regulator’s most recent expungement-related initiatives – a request for comment the self-regulator made in December on planned changes to the expungement process.

Expungement is an extraordinary remedy that should be recommended only under appropriate circumstances.

Finra wants to change the time frame in which expungements can be sought. For a registered individual who is a named party in an arbitration case, the proposed changes would require the individual to file an expungement request no later than 60 days before the first scheduled hearing session; otherwise other parties could object to the request.

If that arbitration case closes with an award, the arbitrators would be required to decide on the expungement request within the underlying case. If the case closes with a settlement or by other means, the individual would be given a year to file a new expungement request. The request would be decided by a three-person panel selected from a new “expungement arbitrator roster” of arbitrators with additional training and specific background or experience.

Finra wants to require a unanimous agreement from a three-person panel of arbitrators to grant an expungement request.

“There’s probably no more contentious issue for Piaba than expungement. It’s one of those hot-button issues. Some believe expungement should be granted,” according to Stoltmann.

“There are people in Piaba who believe that a complaint, regardless of the merit, should never ever be expunged. Sunlight is the best disinfectant. Customers can determine whether it is a frivolous complaint or not based in part on the payout,” he added.