NASD Admits Erasing Negative Marks From Broker Records

The National Assn. of Securities Dealers has been quietly erasing certain negative marks from stock brokers’ public records since January 1995, the agency acknowledged Friday.

About 1,100 items probably shouldn’t have been deleted and will be restored, said Frank McAuliffe, a vice president at the agency.

Although the NASD agreed to restore some of the records after being privately criticized by state regulators over the practice in early 1996, it continues to delete certain arbitration complaints from the records of brokers.

The deletions have been made in two areas. The NASD has been removing references to customer complaints whenever the customer “withdraws” the complaint, said Renee Erdmann, a securities investigator with the state of Montana.

Customers frequently withdraw complaints when a brokerage firm finds a creative way to settle with the customer without officially calling it a settlement, according to lawyers who represent investors and brokers in customer disputes. A customer complaint is typically made in the form of a letter to the brokerage firm and isn’t a request for a formal arbitration proceeding.

The agency also has been deleting records of arbitration complaints when a panel of arbitrators asks that it be done. Although the NASD says it stopped deleting withdrawn customer complaints in April, it still deletes records of arbitrations when an arbitration panel requests it.