expungement claim

FINRA Charging Brokers More for Expungement Claims

Aug 24, 2020

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 […]

Read more