Brokers can end up with unwarranted customer complaints, arbitrations, terminations, and other adverse disclosures on their CRD for reasons beyond their control. While plenty of investors have a legitimate “beef” against their investment professional, some people vet illegitimate or unwarranted frustrations by filing complaints to a broker’s employer or FINRA and it can stay with a broker and hurt his career forever. Sometimes, the brokerage firm, the market or other external forces are actually at fault for the customers’ losses, not the broker. Some customer complaints could be emotional or financially driven rather than rational. Similarly, firms sometimes have “ulterior motives” in terminating and reporting a termination of an investment professional, which could be false and lead to a FINRA 8210 inquiry, investigation or disciplinary hearing, as well as hurt future employment potential forever.
The CRD, short for Central Registration Depository, is the online registration and licensing system FINRA uses as their database for broker records. Potential customers, regulators, and employers have access to most of the CRD’s information through FINRA’s publicly available online resource, BrokerCheck. Customer disclosures permanently show on the CRD irrespective of a broker’s actual culpability for the alleged misconduct. It can negatively change a broker’s career forever.
Frivolous marks on a Form U5 can damage the stellar reputation any well-intentioned brokers craft after years of successful securities industry experience. Fortunately, in the appropriate circumstances, brokers can have marks removed from the CRD in FINRA arbitration or court proceedings. The experienced expungement attorneys at Malecki Law can help brokers pursue removal of negative customers disclosures FINRA arbitration proceedings. It is more difficult, expensive, and time-consuming for investment professionals to pursue expungement requests in courts with FINRA as an adverse party, but an investment professional can file in court as well.
Customer complaints, arbitrations, terminations, and disclosures become part of a broker’s public record when brokerage firms file a Form U4 or U5 with the CRD. Both uniform registration forms have answers to questions regarding a broker’s disciplinary, administrative, employment history and other personal records. Member firms report customer disputes on the Form U4, or the Uniform Application for Securities Industry Registration or Transfer when registering newly employed brokers within their respective states and regulatory agencies. Additionally, customer dispute information becomes part of a broker’s CRD through the Form U5 – The Uniform Notice for Securities Industry Termination – filed within 30 days of a broker’s end of employment.
The procedures for requesting expungement in arbitration proceedings are held according to the Code of Arbitration Procedure for Customer and Industry Dispute rules. The FINRA arbitration process starts when the broker files a statement of claim requesting expungement of certain customer disclosures. Generally, the brokerage firm that reported the customer disclosure in dispute will be the proclaimed respondent. The customer behind the disputed allegations will have the option to appear at the hearing and oppose the broker’s request for expungement.
FINRA arbitration hearings involving requests for expungement of customer disputes are held according to the following procedure as set forth in FINRA Rule 12805:
Under FINRA Rule 12805, the Panel must:
- Hold a recorded hearing session (by telephone or in person) regarding the appropriateness of expungement. This paragraph will apply to cases administered under Rule 12800 even if a customer did not request a hearing on the merits.
- In cases involving settlements, review settlement documents and consider the amount of payments made to any party and any other terms and conditions of a settlement.
- Indicate in the arbitration award which of the Rule 2080 grounds for expungement serve(s) as the basis for its expungement order and provide a brief written explanation of the reason(s) for its finding that one or more Rule 2080 grounds for expungement applies to the facts of the case.
- Assess all forum fees for hearing sessions in which the sole topic is the determination of the appropriateness of expungement against the parties requesting expungement relief.
A panel of arbitrators will examine relevant case information in a hearing to make a fair recommendation on expungement. As specified in Rule 12805 (c), the arbitration panel must base their recommendation on at least one of the three grounds specified in Rule 2080 and produce an accompanying written explanation.
According to FINRA Rule 2080, the grounds for expungement relief 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.
If the arbitration panel recommends an expungement award, a court order pursuant to Rule 2080 is required to officiate the ruling. The claimant broker or assisting attorney must file the petition to affirm the ruling with the court. FINRA must be named as a party to the court proceeding if the arbitration panel failed to explicitly mention one of the three grounds of Rule 2080 in their written explanation. Otherwise, the claimant can request that FINRA waive their involvement. Finally, the court reviews related arbitration documents and renders a decision based on FINRA standards and public investor fairness.
Given continuous industry changes, brokers should immediately initiate the process to expunge customer disclosures from their record. Recently released regulatory notices have reflected FINRA’s continuing commitment to up the bar for expungement requests to be a rarer “extraordinary measure”. FINRA just recently proposed amendments to the Code of Arbitration Procedure in their Regulatory Notice 17-42. The proposed changes include requiring a unanimous decision from a three-person arbitrator panel and shortening the time frame for requesting expungement to one year.
Navigating the process for seeking expungement can be difficult without the best securities attorneys in New York City on your side. Malecki Law’s New York Form U-4 and U-5 attorneys have helped numerous brokers and industry professionals removed dispute customer complaints from their BrokerCheck. Notably, our securities and employment attorneys leverage their vast industry knowledge to secure favorable outcomes for registered brokers in arbitrations against their brokerage firm. Contact our expungement attorneys today to remove unwarranted customer complaints and arbitrations tainting your BrokerCheck.