COMPLY-Wall Street watchdog puts up fight in Calif. broker cases


By Suzanne Barlyn

Nov 14 (Reuters) - Securities brokers who think California'sstate court system offers an easy path for erasing details fromtheir public records may want to think again.

Wall Street's industry-funded watchdog is having somesuccess as a fierce opponent.

One broker recently lost his 2-1/2-year California courtbattle to clear old complaints from his license. Another isfighting the Financial Industry Regulatory Authority (FINRA)'sefforts to move his case out of the state to federal court.

A state appeals court decision there last year gave some ofthe nation's 635,000 brokers hope that going to court inCalifornia could be an attractive alternative to FINRA's processfor cleaning up, or expunging, unflattering details from theirrecords. About 44 percent of U.S. brokers arelicensed in California, according to the state's securitiesregulator.

That decision, in August 2012, made clear that Californiastate judges could decide expungements based on what theythought was fair, instead of applying FINRA's expungement rules,which require proof that the information is false or erroneous.

But as the two current California cases show, anything ispossible, even an unfavorable result. At the very least, brokerstaking their cases to the Golden State can expect a fight, sincethey must name FINRA as a defendant. The regulator has opposedthe brokers in these two cases at every turn.


One of the brokers, Edwin "Mike" Lickiss, cited problemsthat dated back to 1986, when he worked for a predecessor of thebrokerage unit of LPL Financial Holdings Inc and started sellingshares of a real estate investment trust, or REIT.

The REIT filed for bankruptcy in the early 1990s, after itsmanager took $7.2 million in cash. Then, 17 customers filed atotal of $1.5 million in arbitration cases against Lickiss,alleging that he did not disclose the risks. While most of themsettled, the details are still on his public record.

Now, they will stay. "The public interest is best servedwhen investors and regulators have complete access to accurateinformation regarding the history" of brokers, wrote CaliforniaSuperior Court Judge Steven Austin in an October 21 opinion.

"We are disappointed with the court's ruling in this casebut of course will respect it," said Jeffrey S. Salisbury,Lickiss' lawyer in Eugene, Oregon. Lickiss, a broker since 1977,now works for California-based Investment Architects Inc. Thefirm's president did not return a call requesting comment.

The judge noted that securities arbitrators heard cases intwo of the 17 complaints. They found against Lickiss and awardedthe investors a total of $140,000 in those two cases. A total ofmore than $800,000 was paid to the investors in the 15 casesthat settled, the court wrote.

Lickiss did not allege in his court case that thosedecisions were wrong, or that claims in the settled cases werefalse or in error, the court wrote. Instead, his argumentshinged on the disclosures simply being too old.

"If someone wants an expungement, they have to do a betterjob than that," said Seth Lipner, a New York-based securitiesarbitration lawyer for investors who recently studiedexpungement procedures for an upcoming law review article.

While no other complaints have surfaced about Lickiss since1996, "it does not change the fact that at one point in his lifehe was capable of committing multiple acts of seriousprofessional misconduct and fraud," the judge wrote.

A FINRA spokeswoman declined to comment.


FINRA's resistance against a broker in another lawsuitsignals what others can likely expect if they head toCalifornia's courts to clear their records: FINRA moved the caseto federal court. A federal court should hear the case becausefederal law requires FINRA to regulate securities firms andbrokers, FINRA wrote in court documents.

Now the broker, who works at Bank of America Corp's MerrillLynch unit and identifies himself with the pseudonym,John Doe, [ID: nL2N0HE192] is fighting to move the case back tostate court. A spokesman for Merrill Lynch, which is not a partyin the suit, declined to comment.

A hearing on the issue is set for Monday. If Doe loses andthe case stays in federal court, the judge could hear argumentsthat same day about FINRA's request to throw the case out.

Doe's Los Angeles-based lawyer, Jeffrey Riffer, said he wasoptimistic that the federal judge would send the case back tostate court. That happened in the Lickiss case, after FINRAmoved it to federal court.

Regardless, brokers should think twice before bringingexpungement cases in California courts unless they live oractually work there, said Tom Lewis, a lawyer in Lawrenceville,New Jersey who represents brokers in employment issues.

Having a California license may not be enough, on its own,to convince an already overworked state court system that such acase actually belongs there, Lewis said.

"A judge can easily see through that," Lewis said. "It willget shut down quickly."

View Comments (3)