Broker CRD Expungement
If you are a registered person, and are concerned over the disclosure of a customer dispute or a defamatory statement made by a current or former employer that appears on your CRD history, the securities lawyers at Lubiner, Schmidt & Palumbo can help you.
FINRA has a procedure for removing reported customer disputes lodged on a broker's CRD. Under FINRA Rule 2080 a broker who is the subject of a customer arbitration claim may ask the arbitration panel to order FINRA in its award to remove the reported incident from her CRD. The arbitrators are limited to three specific criteria for ordering expungement of reported customer disputes:
- The claim, allegation or information is factually impossible or clearly erroneous;
- The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
- The claim, allegation or information is false.
The panel must hold a separate hearing in making the determination to order expungement based on the three criteria above. FINRA Rules 12805 and 13805 outline the procedures the panel must follow in ordering expungement.
If successful, the broker must then file an action in court, also naming FINRA, confirming the arbitration award and ordering FINRA to delete the objectionable disclosure. Before doing that, however, the broker must write to FINRA asking them to waive their appearance in the court action.
FINRA will then respond to the broker, advising whether it will waive its participation in the court action. Meanwhile, FINRA notifies every state in which the broker is registered of the pending court action in case a particular state would want to object to the expungement. Assuming FINRA does not object to the expungement, and the court confirms the arbitration award, FINRA will delete the disclosure from the broker's CRD.
Rule 2080 also contemplates expungement of claims that are settled prior to a hearing. Rules 12805 and 13805 set forth the procedures for arbitration panels to follow in settled cases.
Customer complaints that did not proceed to arbitration can also be expunged. In those instances, brokers may be able to proceed directly to court to seek an expungement order (see our article on seeking an expungement order directly from a court).
Recently, many brokers have found themselves the subject of reportable customer complaints and arbitration claims alleging sales practice violations in the sale of investments touted to the sales force by the brokerage firm. These "product problem" cases involve structured products, alternative investments, etc., which were improperly marketed to the sales force by the brokerage firm. Brokers have been successful in having these type of disclosures removed, arguing that the sales practice violation was the marketing effort of the firm, not the actions of the financial advisor.
If you are a broker who has this type of disclosure on your CRD record, you should contact the securities lawyers at Lubiner, Schmidt & Palumbo for advice.
Lastly, brokers may also seek expungement of defamatory disclosures made by an employer. A broker may be defending a claim filed by an employer and allege in a counterclaim that the employer made defamatory statements in a disclosure filing. Alternatively, the broker can initiate a claim versus an employer for defamation, seeking damages and an order from the panel that the offending disclosure be removed or amended. These types of expungements are not covered by Rule 2080 (which deals exclusively with customer dispute disclosures). Therefore, a broker does not have to seek confirmation in court of an arbitration award ordering expungement if the panel states that the expungement request is being granted because of the defamatory nature of the objectionable disclosure.
As can be seen from the above, the process for successfully expunging a CRD disclosure is somewhat complicated and comprised of multiple steps. This is not an accident; FINRA views the expungement of a reportable event as an "extraordinary" matter. If you feel you have a disclosure on your CRD that should be removed, you should consult the securities attorneys at Lubiner, Schmidt & Palumbo. We can analyze the CRD disclosure and counsel you as to how best approach the expungement of the disclosure.