|October 17, 2013|
Previously published on October 16, 2013
On October 14th, FINRA Dispute Resolution sent a cautionary mandatory Notice to all FINRA arbitrators who might consider broker expungement requests. According to the Notice, available online, the grounds listed in Rule 2080 for expungement of negative information from the Central Registration Depository (CRD) are “narrow” and expungement is considered by FINRA to be “an extraordinary remedy.” FINRA describes the CRD system as containing broker information that is “essential” to investors, regulators, and prospective employers.
The Notice tells arbitrators that the FINRA expungement Rules-specifically Rules 12805 and 13805-require them to explain in their award why one or more of the grounds for expungement set forth in Rule 2080 applies to the facts of the case. According to FINRA, this means that arbitrators “should ensure that the explanation is...not solely a recitation of one of the Rule 2080 grounds” (i.e., that the claim is factually impossible or clearly erroneous, that the associated person was not involved in the alleged violation, and that the claim is false). FINRA further calls upon arbitrators to “identify in the award...any specific documentary or other evidence that they relied upon in granting expungement.”
The Notice also tells arbitrators to “inquire and fully consider whether a party conditioned a settlement of the arbitration upon agreement not to oppose the request for expungement.” FINRA advises arbitrators to request evidence and documents they believe are relevant to the expungement request, including a current copy of the BrokerCheck report. Finally, the Notice states that “information should be expunged only when it has no meaningful investor protection or regulatory value.”
Although the Notice is merely guidance and not a FINRA Rule, practitioners who are seeking expungement should consider this Notice as a roadmap in seeking a successful expungement from a broker’s CRD.