Starting September 14, 2020, brokers wishing to expunge information from their records will have to pay higher minimum fees to have their claims heard before the Financial Industry Regulatory Authority (“FINRA”). The SEC has recently approved FINRA’s request to amended its Arbitration Procedures for Customer and Industry Disputes to apply minimum fees in connection with requests for expungement of customer dispute information, whether the request is made as part of the customer arbitration or the broker files an expungement request in a separate arbitration (“straight-in request”). The amendments also apply a minimum process fee and member surcharge to straight-in requests, as well as a minimum hearing session fee to expungement-only hearings.
A Broker’s Record of Customer Complaints is Publically Available on BrokerCheck®
Customer complaints and arbitration claims are reported through the Central Registration Depository (CRD®) system which is the national licensing and registration system used by the U.S. securities industry. The information in the CRD system is generally submitted by registered securities firms, brokers, and regulatory authorities in response to questions on the uniform registration forms including the U4 and U5 forms. Among other things, these forms collect administrative, regulatory, criminal history, and disciplinary information about associated persons, including customer complaints, arbitration claims, and court filings made by customers.
Certain CRD information is publically available through a system called BrokerCheck®. BrokerCheck can be used by investors to make informed choices about the brokers and broker-dealer firms with which they may conduct business.
Brokers Can Seek to Get CRD Information Expunged Through FINRA
There are situations where brokers can have certain false information removed from their CRD system through a FINRA arbitration process. In order to balance the benefits of disclosing information about customer disputes to regulators and investors with the goal of protecting brokers from the publication of false allegations against them, a process for expungement was established. This process, under FINRA Rule 2080, allows for the expungement of claims where the allegations made about the broker are factually impossible or clearly erroneous.
There are two ways through the FINRA process that a broker can seek expungement of customer dispute information: 1) the broker or his or her firm (called a “requesting party”) may seek expungement through the FINRA arbitration process by making the request during a customer arbitration; or 2) the broker may request expungement by filing a “straight-in request,” which is a separate arbitration claim filed by the broker against a former or current member firm or the customer.
FINRA Raised its Filing Fee Mostly in Response to Straight In Requests
FINRA implemented this new process because it became concerned about practices to avoid fees applicable to expungement requests, particularly straight-in requests. This was because brokers who were filing straight-in requests often added a small monetary claim (usually, one dollar) to the expungement request to reduce the fees assessed against the broker and qualify for an arbitration heard by a single arbitrator.
Typically, an expungement request would be considered non-monetary in nature since it is generally just a request to remove a customer complaint. Non-monetary claims had a higher filing fee than claims for damages, so this one dollar damage request lowered the filing fee. And, by requesting one arbitrator which was allowed due to the small damage request, the hearing session fees for the expungement request were lower than a typical three-person panel.
In response to this practice, FINRA stated that it “enacted the filing fee change to help ensure that parties requesting expungement pay the fees intended for such requests under the Codes and that the fees charged when expungement is requested are more consistent.” Thus, FINRA amended the both its Customer and Industry Codes of Arbitration Procedure applying an across the board minimum filing fee for all expungement requests, which is applicable whether the request is part of the customer arbitration or a straight-in expungement request, even where the requesting party adds a small damages claim. The amendments additionally add a minimum process fee and member surcharge to straight-in requests, and a minimum hearing session fee to expungement-only hearings held after a customer arbitration or in connection with a straight-in request.
Amendments to Fees for Expungement Requests Filing Fees
Under the amendments, a broker or a requesting party seeking expungement must pay the filing fee for a non-monetary claim (currently $1,575) for an expungement request made during a customer arbitration or filed as a straight-in request. If the broker or requesting party adds a monetary claim to the expungement request, the filing fee will be the greater of the fee for a non-monetary claim or the applicable filing fee based on the claim amount, whichever is greater.
Member Surcharge for Straight-in Requests
The FINRA amendments apply a minimum member surcharge when a broker files a straight-in request against a member firm. If the broker files a straight-in request against a member firm, that firm will be assessed the member surcharge for a non-monetary claim under the Industry Code (currently $1,900). If the broker adds a separate claim for damages to the straight-in request against the member firm, the member surcharge will be the greater of the non-monetary member surcharge or the applicable surcharge under the Codes.
Process Fees for Straight-in Requests
The FINRA amendments apply a minimum process fee if the broker files a straight-in request against a member firm. The opposing firm will be assessed the processing fee for a non-monetary claim under the Industry Code (currently $3,750). If the broker adds a separate claim for damages to the straight-in request, the processing fee assessed against the firm will be the greater of the non-monetary process fee or the applicable FINRA process fee.
Hearing Session Fees
Under the FINRA amendments, the hearing session fee for a non-monetary claim heard by three arbitrators (currently $1,125) will apply to each hearing session in which the sole topic is the determination of a request for expungement relief. This means that the hearing session fee will apply when a customer arbitration settles and there is a separate hearing session held later to decide an expungement request, as well as to a straight-in request. If the requesting party adds a monetary claim to the expungement request, the hearing session fee will be the greater of the fee for a non-monetary claim with three arbitrators or the applicable hearing session fee under the Codes based on the claim amount.
Finally, as is currently the rule, the hearing session fee will be assessed against the party requesting an expungement. Thus, under these new procedures, the costs of a FINRA expungement have just been greatly increased. If you are a broker seeking expungement, you will likely be assessed these much-increased costs.
Are You A Broker Who has a FINRA Expungement Claim?
If you are an investment advisor or broker who believes that you have an expungement claim, or that there is erroneous information on your U4 or U5 termination notice, contact the offices of expungement lawyer Melanie Cherdack at www.investorfraudlaw.com for a free consultation. Because she has been in the trenches as a former Wall Street attorney, Melanie Cherdack and her team of experienced attorneys are well versed in the ins and outs of FINRA employment arbitration, including wrongful termination and U5 defamation. She heads up a group of attorneys who represent brokers against their employers across the United States. Contact us by filling out our online contact form, or calling 305-349-2336 or toll-free at 888-768-2499.