Auction Rate Securities Expungements Discussed in Registered Representative

Posted by on Dec 13, 2011 in Securities Regulation, Stockbroker issues | Comments(0)

It’s interesting how the securities business goes in cycles. Over 20 years ago, my former employer Prudential Securities (now Wells Fargo Advisors) had problems with limited partnerships. At the time, the Prudential Securities name became synonymous with limited partnership sales, even though other firms sold LPs in greater volumes.

Other products have come and gone. More recently, Auction Rate Securities (ARS) are in the news. While the credit market lock-up is old news, the effects of these products is just being felt by registered representatives. As this article in Registered Representative magazine describes, stockbrokers are facing a lifetime tattooed with customer complaints which were none of their doing. Wachovia/Wells Fargo, along with other brokerage firms, settled with securities regulators and agreed to buy back ARS from their retail customers. However, because of a strict reading of U-4 reporting requirements, financial advisors at many firms have seen otherwise unblemished records tarnished through no fault of their own. The real question I have is why didn’t the firms negotiate the non-reportability of these settlements.

But there are steps to fix this. They require time and money. An expungement arbitration can be started to get relief from the reported settlements. While there is no guarantee that an arbitrator or arbitrators will grant the expungement request, the language placed by most firms forced to settle ARS complaints will go a long way towards convincing an arbitrator that an expungement is proper.

The next step is court confirmation, if the expungement award is entered. Generally, this is handled in the same manner as confirming an arbitration award. If and when the court confirms the award, then the order is sent to the CRD processing center and the negative information is removed. The happy day is when the broker looks at his or her CRD and does not see the complaints that previously tainted the report.

That’s the view of one Lawyer from Jupiter, Florida. I’m Marc Dobin.

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