Checking a broker’s record with the NASD – Caution

Many websites, including those of many government agencies, suggest that you check with the NASD website to see if the broker has been the subject of any customer complaints or disciplinary proceedings. This is always a good idea. The problem is the NASD website just isn’t completely accurate.

In the first place, a quite of few of the firms have been accused of being lax in reporting infractions and complaints to the NASD on a timely basis.
In the second place, the NASD has allowed a practice called “expungement” to go on for years.  Expungement usually occurs when a customer actually files a formal complaint against a broker, but agrees to have the record of that complaint “expunged” from the broker’s official record in return for a cash settlement.  So the brokers can pay off to keep their records clean, and keep the fact a complaint from a prior customer quiet.

We recommend that you do check with the NASD but that you don’t assume that you are getting all of the information in any category that they are reporting.