The Central Registration
Depository (“CRD”) and the publicly available online portal, BrokerCheck,
comprise FINRA’s registration and licensing system. Via BrokerCheck, customers, employers, and
regulators can access information regarding customer complaints levied against
an individual broker. BrokerCheck plays
a key role in allowing customers to evaluate their broker’s track record before
making investment decisions. By the same
token, adverse claims can have a devastating effect on a broker’s ability to
retain their clients.
As such, FINRA has established
rules for the expungement of certain adverse claims from CRD. Currently, FINRA Rules 12805 and 2080 control
customer complaint expungement proceedings.
Rule 12805 requires that a broker file a Statement of Claim requesting
expungement of the customer disclosure.
The panel must:
· hold a recorded session regarding the
appropriateness of the expungement;
· when applicable, review settlement documents and
consider the amount of payments made to any party;
· provide a written explanation which indicates
which of the grounds for expungement under Rule 2080 is the basis for the
order; and
· assess all fees for the hearing against the
party requesting expungement.
Under Rule 2080, grounds for
expungement include:
· 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.
Following an arbitration award
recommending an expungement, the broker must then file a petition in a court of
competent jurisdiction to obtain an order confirming the award and directing
such expungement.
In December 2017, FINRA published
Regulatory Notice 17-42, a proposed amendment relating to requests to expunge
customer dispute information. Regulatory
Notice 17-42 would create a roster of arbitrators with specific training and
experience to handle all expungement requests.
It would also require:
· the broker to appear at his or her expungement
hearing;
· unanimous agreement of the three person
arbitration panel;
· expungement requests to be brought within one
year of the dispute; and
· minimum fees for filing expungement requests.
Since publishing Regulatory
Notice 17-42 for public comment, FINRA has not submitted it to the SEC. As such, the proposed expungement rules are
not currently in effect. In a March 2019
letter to FINRA President and CEO Robert Cook, Senator Elizabeth Warren
requested an update on FINRA’s proposed rule changes to its customer dispute
information expungement process. If eventually submitted and finalized, the new
process for removing customer dispute information from a broker’s CRD will be
more onerous on the broker and likely decrease the frequency with which
expungement requests are granted.
Senator Warren’s letter requests, among other things, a timeline for
when FINRA will submit Regulatory Notice 17-42 to the SEC for approval.
It is unclear if or when the new
CRD expungement rules will be submitted to the SEC and put into effect. FINRA spokespersons have declined to comment
on the substance of Senator Warren’s letter, stating, “We have received the senator’s
letter and are working to respond accordingly.”
Given the uncertainty of the status of FINRA’s
expungement rules, it is important that brokers seeking CRD expungement select
an attorney capable of guiding them through expungement proceedings under the
current and any potential future FINRA rules.
Cosgrove Law Group, LLC has represented numerous individuals in CRD
expungement proceedings under the current rules and stands ready to represent
brokers in proceedings governed by the proposed amended rules. If you are seeking expungement of customer
complaints from your CRD/BrokerCheck, you may wish to consult with experienced
counsel at Cosgrove Law Group.
BY: Max Simpson
