State of Maryland Achieves Significant Victory in Ensuring Negative Stockbroker Information Remains Available to Consumers
Ruling Also Allows Maryland Securities Commissioner the Right to Intervene

BALTIMORE, MD (July 21, 2008) - Attorney General Douglas F. Gansler announced today that the State of Maryland has achieved a significant victory in its efforts to protect investors and the integrity of the national stockbrokerage licensing and registration system in which every state participates. In Karsner v. Lothian, a case on appeal to the U.S. Court of Appeals for the District of Columbia Circuit, the Court ruled that the State of Maryland has the right to participate in the case and seek to prevent records of consumer complaints against stockbrokers from being expunged.

The appeal arose when the Maryland Securities Commissioner moved to intervene in a case to oppose stockbroker Joseph Karsner’s attempt to expunge arbitration information from the State’s records. The relevant information discloses the settlement of an arbitration of a customer complaint - one of eleven that are the subject of expungement requests filed by Karsner that are stayed pending the outcome of this case - claiming that Karsner made unsuitable investments and negligently managed the customer’s account. Such records are public information and are used by investors to assess whether to do business with a stockbroker and by the State to make licensing and other regulatory decisions.

“This decision ensures that the State will have the opportunity to protect our citizens from brokers’ attempts to purge their records of negative information and deny investors and regulators the ability to make informed decisions concerning those brokers,” said Attorney General Gansler. “The Court agreed with us that the State has an absolute right to protect its interests and those of its citizens from a broker’s attempt to expunge records of proved or alleged professional misconduct.”

The Court remanded the case to the District Court with instructions to allow the Securities Commissioner to intervene in the case and to move to void the District Court’s earlier confirmation of the arbitration award. The Court’s opinion also instructed the District Court to examine whether the court is empowered to grant an arbitration panel’s recommendation of expungement and explicitly rejected that the power is granted by the Federal Arbitration Act. The ruling raises serious doubts as to whether such authority even exists.

The case is Karsner v. Lothian, No. 07-7080, 2008 WL 2727402 (D.C. Cir. July 15, 2008) and can be found at http://www.oag.state.md.us/Securities/Actions/2008/JRK08.pdf. A related Securities Division enforcement action is pending against Joseph Karsner and can be found at http://www.oag.state.md.us/Securities/Actions/2007/Karsner_LegacyOSC_3_07.pdf.

In making today’s announcement, Attorney General Gansler expressed his appreciation for the assistance of the North American Securities Administrators Association and the Public Investors Arbitration Bar Association as both associations filed amicus curiae briefs in the case.