FINRA has proposed changes to its EXPUNGEMENT RULES to the SEC. The changes are expected to be approved. Expungement will be:
Do you have old customer complaints on your CRD record which don’t belong there?
Were you wrongly named in a customer arbitration that was settled but you didn’t do anything wrong?
Do these disclosures still appear on your CRD disclosure history (and can be seen by current and prospective clients on FINRA’s BrokerCheck system)?
NOW IS THE TIME TO GET THOSE DISCLOSURES OFF YOUR CRD AND BROKERCHECK REPORTS BEFORE THE RULES CHANGE
Lubiner, Schmidt & Palumbo are experienced securities arbitration, regulatory and employment attorneys. We represent small, medium and large broker-dealers and individual brokers. We have successfully obtained numerous expungement orders from FINRA arbitration panels on behalf of clients.
However, when the SEC, as is expected, approves the new FINRA expungement rule amendments, the expungement process will become more expensive and difficult for individuals with customer complaint disclosures. The new rules will also prohibit the expungement of disclosures that occurred beyond the time period specified in the rules. Brokers with such disclosures should consider seeking expungement NOW before the rule changes go into effect.
For several years now, financial advisors have had the ability to remove some customer complaint disclosures that appear on their Central Registration Depository (“CRD”) history. These disclosures are also available to the public through FINRA’s BrokerCheck system.
FINRA has submitted proposed changes to its expungement rules to the Securities Exchange Commission for approval in 2018. The comment period for the proposed changes ended February 5, 2018. It is anticipated the rule changes will be approved shortly.
These rule changes, made at the behest of attorneys who represent aggrieved investors, consumer groups and others who favor the “tightening” of the expungement process, will create a pool of experienced arbitrators to hear expungment requests, create additional criteria for granting the requests and set time limits within which registered persons must seek expungement of customer complaint disclosures.
The proposed amendments, if enacted, will also make it more expensive for brokers to seek expungement of objectionable CRD disclosures.
Below is a brief description of the proposed changes:
Initiation of Expungement Requests and Arbitrator Selection – In arbitrations handled to conclusion and in which the panel makes an award, the panel must reach a unanimous decision to recommend expungement. In cases in which the case is settled or otherwise resolved without an award, the person seeking expungement must file a new arbitration claim. The arbitration panel for that claim will be drawn from an “Expungement Arbitrator Roster.” Arbitrators on that roster will be public chairpersons with additional qualifications.
In simplified arbitrations (i.e., with one arbitrator) the person seeking expungement must wait until the conclusion of the case before requesting expungement. He must then file a new claim seeking expungement. Three arbitrators will be selected to hear the claim, drawn from the Expungement Arbitrator Roster.
In instances involving customer complaints which did not become arbitrations, the person must file an arbitration claim with FINRA seeking expungement. Three arbitrators to hear the case will be drawn from the Expungement Arbitration Roster.
Persons Seeking Expungement Who Are Not Named As A Respondent – FINRA’s reporting rules require that firms report customer complaints/arbitration claims against brokers named in the complaints/claims and those that are not named but “are the subject of” the complaint/claim.
Unnamed parties may seek expungement of the underlying arbitration and be represented by attorneys for a named party. The attorney also representing the unnamed party must provide a form to FINRA, signed by the unnamed party, confirming the representation and the unnamed party’s agreement to be bound by the decision of the panel. If not represented by an attorney for a named party, the unnamed party may file a claim seeking expungement after the underlying case closes, provided he is not otherwise barred from doing so.
Who To Name In The Expungement Claim - When a person files an arbitration claim seeking expungement, she must name as a respondent the firm for which she was working at the time of the transactions involved in the dispute. Persons seeking expungement will not be permitted to name the customer as a respondent.
Cost Of Filing Expungement Claim – Persons seeking expungement will have to file a claim under the Industry Code and will be charged a $1,425 filing fee. Currently, a broker could name his firm as a respondent and allege $1 in damages, thereby requiring a $50 filing fee.
Conduct Of The Hearing – The panel is required to conduct a hearing in person or by videoconference. Persons requesting expungement may not appear by telephone. Customers may participate by telephone.
Grounds For Recommending Expungement – Currently, a panel can grant an expungement request if the person seeking expungement meets one of three Rule 2080(b)(1) criteria for expungement. The proposed amendments add an additional criterion: that the customer dispute disclosure has no “investor protection or regulatory value.” Again, the panel’s decision to grant an expungement request must be unanimous.
Time Limitations – The proposed rules will impose time limitations on filing expungement requests. The rules state that a person seeking expungement regarding an arbitration claim which is closed other than by an award must file the claim seeking expungement within one year of FINRA closing the arbitration case. For customer complaints that do not become arbitrations, the expungement claim must be filed within one year of the date the complaint is first reported to CRD. If the customer dispute disclosure was in existence before the effective date of the new rules, an expungement request must be filed within six months of the effective date.
Additional Limitations – The proposed rules impose additional limitations on persons seeking expungement of customer dispute disclosures. A broker will not be able to seek expungement if (1) a panel in the underlying case issued a decision on the expungement request for the same customer dispute disclosure; (2) a request to expunge the same customer dispute disclosure was denied by a court; and (3) the underlying arbitration has not yet concluded.
These proposed rule changes represent FINRA’s continued view that expungement of customer dispute disclosures is an extraordinary remedy. Moreover, they may also reflect FINRA’s sensitivity to the concerns of claimants’ lawyers (namely, PIABA) and consumer groups. Mandating high filing fees, requiring in person hearings for brokers, adding additional grounds to obtain a favorable decision from an unanimous panel – these new rules will only serve to make obtaining an expungement harder and more expensive.
And this is not an accident.
CONTACT Lubiner, Schmidt & Palumbo now for a free consultation to discuss expungement – before it is too late!