Articles Tagged with expungement

In late May, FINRA issued a  press release announcing the temporary withdrawal of proposed rule changes regarding the process for obtaining expungement of customer dispute information maintained for registered representatives on WebCRD, or “BrokerCheck.”

The proposed rule changes were issued in 2017 for possible SEC approval and have previously been discussed on our blog. Since 2017, FINRA has responded to various SEC requests for additional information, and the deadline for adoption of the rule proposals has been extended. The withdrawal release cites “consultations with the SEC staff” as the basis for withdrawal of the rule proposal and concludes by restating FINRA’s commitment that it will continue to consult with, and solicit input from, the SEC and other interested parties “who share a common interest in revising” the expungement process.

Among other things the proposed rule changes included:

  • Establishing a new category of arbitrators trained and qualified to decide expungement cases, and maintaining a roster of those arbitrators who will decides such cases;
  • Eliminating the process for ranking arbitrators that are appliable to other industry and customer arbitrations;
  • Prohibiting stipulations or agreements to allow the case to be decided by fewer than three arbitrators chosen from the special panel;
  • Requiring a broker who is named in the underlying arbitration to seek expungement in that arbitration;
  • Imposing stricter time limits within which brokers may request expungement; and
  • Limiting situations in which a party to a customer dispute – such as a broker-dealer – can request expungement relief for an unnamed party, such as a registered representative of that broker-dealer.

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In response to FINRA’s Regulatory Notice 17-42, the Securities and Exchange Commission published a letter detailing its thoughts regarding some rule amendments FINRA proposed relating to its expungement procedures.  According to FINRA, “expungement of customer dispute information is an extraordinary measure, but it may be appropriate in certain circumstances.”  Nevertheless, critics of expungement have voiced their concern that FINRA’s current procedures for expungement may not be adequate.  In response, FINRA proposed the amendments to improve procedures involving expungement requests.

The proposed amendments include changes to FINRA Rule 12805, which outlines the conditions that arbitrators must satisfy prior to granting an expungement request.  Rule 12805 does not currently elaborate on how or when expungement relief may be requested during an underlying dispute with a customer.  The amendments would require a FINRA associated person who is named as a party in the underlying customer case to seek expungement while the customer case is ongoing.  If the associated person files an expungement request, he or she would be obligated to file either a $1,425 filing fee or the applicable filing fee provided in FINRA Rule 12900(a)(1), whichever is greater. Continue reading ›

In September 2017, the Financial Industry Regulatory Authority updated a previously published Notice related to FINRA Rules 12805 and 13805, which “establish procedures that arbitrators must follow before recommending expungement of customer dispute information related to arbitration cases from a broker’s Central Registration Depository (CRD®) record.”  When details are expunged from the CRD system, those details are permanently deleted and cannot be accessed by members of the general public, regulators, or potential broker-dealer employers.  As a result, FINRA regards expungement as an extreme remedy that should only be exercised in circumstances in which one of the three “narrow grounds specified in Rule 2080” are met.  These three grounds are a finding that the claim, allegation or information is factually unfeasible or obviously erroneous, a finding that a registered person did not participate in the alleged investment-related misconduct, or a finding that the claim, allegation, or information is untrue.

The updates to the Notice added instructions regarding expungement requests before an underlying arbitration case has concluded.  According to FINRA, a broker is not permitted to file an expungement request pertaining to customer dispute information until after the underlying customer arbitration involving the information has concluded.  Likewise, a broker is forbidden from filing an expungement request in a distinct, expungement-only case before an underlying customer arbitration ends.  The updates to the Notice also provide that FINRA allows the Director of the Office of Dispute Resolutions to deny use of the FINRA arbitration forum if the Director concludes that the subject matter of the dispute is unsuitable, or that consenting to hear the matter would create a risk to the health and safety of the parties and arbitrators.  The updates conclude by saying that the Director has decided to not allow requests for expungement to be heard before the underlying customer arbitrations conclude in order to keep results consistent and to ensure efficiency. Continue reading ›

In a decision last month, the California Court of Appeals may have opened the door for brokers to bypass the Financial Industry Regulatory Authority’s (FINRA) rigid expungement rules in order to remove matters from their CRD records. Currently, brokers must abide by Rule 2080 in order to expunge their records. The FINRA rule allows for expungement only upon meeting one of three tests: (1) the claim is factually impossible, (2) the broker was not involved in the conduct or (3) the information is false. The rule states that a broker who seeks expungement “must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.”

In its recent decision, the California Court of Appeals held that a court may expunge a broker’s CRD record in the interest of fairness and equity, regardless of FINRA’s rule. Edwin Lickiss filed a petition in the court in April 2011 seeking expungement of 17 customer complaints and a regulatory action from his CRD record claiming that they were old and irrelevant and negatively affected his profession. The customer complaints against Mr. Lickiss had resulted in total payments of $831,000, and Mr. Lickiss was required to personally pay a $5,000 settlement. FINRA objected to Mr. Lickiss’s expungement request, stating that he was trying to “sanitize his record and prevent regulators, brokerage firms and investors from learning of this history for what amounts to ‘time served.'” The trial court dismissed the complaint, citing the requirements of Rule 2080. The court of appeals reversed the trial court’s decision, holding that it should have looked to equitable principles instead of FINRA rules.
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The Financial Industry Regulatory Authority (FINRA) has proposed a rule which would allow individuals who are not named as parties to a customer-initiated arbitration case to seek expungement relief by initiating “In re” expungement proceedings. Currently, unnamed persons do not have a prescribed way to seek these types of expungements, and must seek relief by:

  • Asking their current or former firm that is a party to the arbitration to request expungement on their behalf;
  • Seeking to intervene in the arbitration filed by the customer; or
  • Initiating a new arbitration case in which the unnamed person requests expungement relief and names the customer or firm as respondent.

According to Regulatory Notice 12-8, “FINRA believes that the current options do not always adequately address a number of issues that can arise in connection with expungement requests.”
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