While it is possible for brokers to leave an explanatory comment regarding information recorded in the BrokerCheck database, the most effective remedy is expungement of customer dispute information from the database. A successful expungement request removes the dispute record entirely from both the CRD and BrokerCheck.
Brokers that have records of customer disputes in the CRD and BrokerCheck databases should strongly consider taking action now to correct these blots on their professional reputation. In fact, petitions seeking expungement are particularly well-timed, in view of recently proposed FINRA rule changes that threaten to make expungement of customer dispute information more costly and difficult to obtain.
Web CRD
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Web CRD is a secure database that is available to broker-dealer firms as well as state and federal regulators.
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BrokerCheck, a well-publicized source of information for investors, is derived from CRD records.
The Financial Industry Regulatory Authority makes customer dispute information available in two places: Web CRD and BrokerCheck.
In the area of customer dispute information, the data in CRD and, by extension, BrokerCheck, is derived from the disclosures that brokers make on FINRA Form U-4 (Uniform Application for Securities Industry Registration or Transfer) and brokerage firms make on FINRA Form U-5 (Uniform Termination Notice for Securities Industry Registration). The Financial Industry Regulatory Authority requires disclosure of any consumer-initiated, investment-related arbitrations and civil litigation proceedings, regardless of outcome or whether they are still pending. These records persist in CRD and BrokerCheck permanently. The only way to remove them is by filing a request for expungement with FINRA.
Several additional procedural requirements are contained in FINRA Rule 12805, which governs the workings of arbitration panels. In order to grant expungement of customer dispute information under Rule 2080, the arbitration panel must make the required Rule 2020 findings plus:
Under FINRA Rule 12401, customer claims of more than $100,000, as well as claims that do not specify an amount and do not request money damages, are heard by three-person arbitration panels. Claims that are $50,000 or less are heard by one arbitrator. Claims that are more than $50,000 but not more than $100,000 are heard by one arbitrator, unless the parties agree to a three-person arbitration panel.
After obtaining an arbitration award granting expungement relief, the broker must subsequently seek judicial confirmation of the award from a court of competent jurisdiction, and then, after obtaining a court order, return to FINRA to have the disclosure expunged from the CRD and BrokerCheck systems.
Three Person Arbitration Panels
- Customer claims of over $100,000
- Claims that do not specify an amount
- Claims that do not request monetary damages
Single Arbitrator
- Claims over $50,000 but less than $100,000
FINRA Proposes to Make Expungement More Difficult
FINRA, in late 2017, proposed sweeping changes to the procedures for obtaining expungement of customer complaint information from the CRD and BrokerCheck databases. The intent of the FINRA proposal was to respond to widespread criticisms that expungement is too easy to obtain and that sanitized broker records were putting the investing public at risk.
The Securities and Exchange Commission released largely supportive comments earlier this year. If adopted, FINRA’s new procedures will make it significantly more difficult to obtain expungement of customer complaints.
For example, the proposed FINRA expungement rules would require that:
- Expungement requests made during an arbitration proceeding on a customer’s complaint be made 60 days before the first scheduled hearing session.
- Brokers filing an independent claim for expungement name as a respondent the firm they worked at during the time period giving rise to the customer’s complaint.
- Independent claims for expungement be decided by a three-member arbitration panel, where each panelist is an attorney (litigator, regulator or former judge) who has received specialized training in handling expungement requests.
- Brokers appear before the arbitration panel, in person or via videoconference, for all independent claims for expungement (the customer may appear in person or via telephone).
- A panel decision to grant expungement relief be unanimous.
- In addition to the current Rule 2080 required findings, the arbitration panel also find that “the customer dispute information has no investor protection or regulatory value”.
- Expungement requests not made and decided in the course of an existing arbitration case be subject to a one-year limitations period (for cases that arose before the effective date of the rules changes, the broker would have six months from the effective date to request expungement).
While it is possible for brokers to leave an explanatory comment regarding information recorded in the BrokerCheck database, the most effective remedy is expungement of customer dispute information from the database. A successful expungement request removes the dispute record entirely from both the CRD and BrokerCheck.
Brokers that have records of customer disputes in the CRD and BrokerCheck databases should strongly consider taking action now to correct these blots on their professional reputation. In fact, petitions seeking expungement are particularly well-timed, in view of recently proposed FINRA rule changes that threaten to make expungement of customer dispute information more costly and difficult to obtain.
Call an U5 Expungement Lawyer at Wolper Law Firm today.
Hold a recorded hearing session (by telephone or in person) regarding the appropriateness of expungement.