If an investor checked the securities industry's official regulatory database of complaints against brokers for the name of Michele Kief, a Wells Fargo broker in Naples, Fla., it would reveal nine client disputes—enough red flags to give a customer pause.
But on May 24, a panel of arbitrators for the Financial Industry Regulatory Authority granted a request to polish Ms. Kief's record a bit. Although Wells Fargo had agreed to pay $125,000 to settle a complaint brought by a client who had accused the bank of negligence and fraud related to Ms. Kief's actions, the arbitrators said the investments at issue were "suitable and safe" for the client and agreed to recommend deletion of the complaint from her record. They drew the conclusion after a hearing at which only Ms. Kief was represented.
The client, although invited, declined to attend.
Similarly, in February, three Finra arbitrators agreed to recommend deletion of a complaint against Kimon P. Daifotis, a former Charles Schwab executive who had run a fund called Schwab Yield Plus in which investors lost hundreds of millions of dollars. It was the eighth such recommendation by arbitrators for Mr. Daifotis since last August, despite the fact that he had agreed in a settlement with the Securities and Exchange Commission to be barred from the business and to pay $325,000 in penalties and forfeited profits. Mr. Daifotis did not admit or deny wrongdoing and will be allowed to reapply for Finra membership in 2015.
As Main Street investors rely increasingly on Finra's online database, BrokerCheck, to vet professionals on Wall Street, brokers and executives like Ms. Kief and Mr. Daifotis are pursuing every means possible to remove negative information from their records. Ms. Kief, in fact, even went so far as to ask her arbitrators to expunge two unrelated arbitrations, which the panel declined to do.
"People are starting to use BrokerCheck the way they use TripAdvisor," said Seth E. Lipner, a professor of law at the Zicklin School of Business at Baruch College who represents investors in cases against brokers. "No broker wants these red flags on their record."
The effort to expunge records would be less critical if brokers were subject to the same legal exposure as other professionals who are defendants in lawsuits brought by customers, like doctors or lawyers, investor advocates say.
But as a result of a 1987 Supreme Court decision, brokerage firms have been able to insist that customers give up their right to sue in court before they can even open an account. The resulting transfer of investor lawsuits to private arbitration has meant that Wall Street firms and their employees have avoided the burden of a court record of claims against them for a quarter-century. Arbitration hearings are closed and documents are not available to the public. The information on BrokerCheck is thus the only repository of allegations an investor can mine.
BrokerCheck includes information about customer complaints, regulatory actions and brokers' criminal histories, liens and bankruptcies. Finra rules say brokers can obtain recommendations for deletions if arbitrators decide a claim is false or erroneous or the broker wasn't involved in the alleged misdeed. Sometimes a broker is named in a complaint, but has played no role in the suspected wrongdoing. A court confirmation is required after a recommendation.
More From The New York Times:
Investors relying on BrokerCheck can take comfort that some warning flags always remain. BrokerCheck does not include all the complaints against Mr. Daifotis, for example, but it does reveal his settlement with the S.E.C. Ms. Kief's record shows nine complaints, including the one regulators recently recommended for expungement.
Anthony Mattera, a Wells Fargo spokesman, said the company did not seek to have complaints removed unless it had "a high degree of confidence" that it met at least one of the Finra requirements. He said Ms. Kief declined to comment.
Audette Morales, a lawyer for Mr. Daifotis, said that arbitrators in many of the claims against him were aware of the S.E.C. action, adding that Mr. Daifotis had followed Finra's guidelines for expungement.
Brokers seeking expungement must go through a series of steps that can take one or more years to satisfy before an item is actually removed, said a Finra spokeswoman, Michelle Ong, and state regulators are informed when a local broker is seeking to remove information, giving them a chance to protest if they think a complaint should remain.