State of Maryland Achieves Significant Victory in
Ensuring Negative Stockbroker Information Remains Available to
Ruling Also Allows Maryland Securities Commissioner the Right to
BALTIMORE, MD (July 21, 2008) - Attorney General
Douglas F. Gansler announced today that the State of Maryland has
victory in its efforts to protect investors and the integrity
of the national stockbrokerage licensing and registration system
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
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.