Spotlight

The Cornell Securities Law Clinic has submitted a Comment Letter to the Securities and Exchange Commission with regard to a Proposed Rule Change by the Financial Industry Regulatory Authority (FINRA) as to the public availability of FINRA BrokerCheck ("BrokerCheck") records after registered persons leave the securities industry. 

Under the Proposed Rule Change, only a very limited set of broker disciplinary records would be available to the public through BrokerCheck beginning two years after a broker left the securities industry. The Clinic urged the SEC to make complete BrokerCheck records available indefinitely.

The Clinic supported FINRA’s position that investors were better off when the BrokerCheck record is kept online for a longer term, however, the Clinic believed that the amount of information that FINRA proposed to keep available was too limited based on FINRA’s own reasoning expressed in the Proposed Rule Change.

In the Proposed Rule Change, FINRA noted that investors may continue to have an interest in the relevant disciplinary information available on BrokerCheck because formerly registered persons may continue to work in investment-related industries or otherwise attain positions of trust. Based on this interest, the Clinic believed public investors were best protected when the full BrokerCheck record was available online indefinitely.

The Clinic argued that the potential risks that investors face included fraudulent investment schemes such as affinity frauds and Ponzi schemes. Not only was FINRA aware of these risks, it had taken steps to counter these problems.  Since FINRA was aware of the risks associated with these types of schemes, FINRA should take steps to identify policies that best addressed these risks.

FINRA claimed that keeping the BrokerCheck record available for two years struck a balance between the interests of the investing public and the privacy and fairness interests of formerly registered persons. The Clinic argued that FINRA’s approach was inappropriate because FINRA’s mission is to protect the investing public and not to balance this goal with the needs or interests of formerly registered persons. Even if balancing were a legitimate concern, the Clinic argued that the whole BrokerCheck record should still be kept online indefinitely because formerly registered persons lack any relevant privacy or fairness interests.

Clinic student Michael H. Wolk ('10) was responsible for researching and drafting the Comment Letter.