The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees the securities industry. Under FINRA rules, when a customer files a complaint against an industry member, that complaint will be recorded into the organization’s Central Registration Depository (CRD) system.
This is extremely important, as collecting this information helps to create more trust between customers and advisors in the industry. Indeed, by using FINRA’s free BrokerCheck tool, any person can look up the past history of any member firm or registered financial advisor. There, any past misconduct will be recorded.
However, all customer complaints may not stay on a broker’s “permanent record”. There are limited circumstances in which FINRA members can seek to have adverse information removed from the CRD system. This is known as “expungement of customer dispute-related information,” and it is controlled by FINRA Rule 2080.
When Can Information Be Expunged?
In order to have information removed from the CRD system, a broker (or broker-dealer) must be able to prove any one of the following three things under Rule 2080:
- The claim or allegation against them is unquestionably erroneous (could not be true);
- There is no allegation of a qualifying investment-related violation; or
- The claim or allegation is false.
The Process for Expungement
Expungement can be sought concurrently with the initial investment fraud claim. For example, if a broker is a party to a FINRA arbitration case, they may seek expungement as a part of their counterclaim. The arbitrator to the proceedings will then need to determine if the securities industry member qualifies for expungement under any of the three criteria set forth by FINRA Rule 2080.
Under this rule, there are some specific procedural criteria that will need to be followed. To start, the arbitrator to the claim will need to hold a specific mini-hearing on the issue that involves either a conference call or an in-person meeting. If expungement of the case is granted, then the arbitrator will need to explain precisely why they came to that conclusion.
An Arbitrator Award for Expungement Is Not the End of the Matter
Once an arbitrator grants expungement to a broker, that individual will need to send an official letter to FINRA requesting a waiver. This waiver will allow information related to the customer complaint to be removed (or never entered) into the CRD system. If FINRA grants the waiver, then the expungement is official, and the matter is resolved.
However, if FINRA declines to grant such a waiver, then the self-regulatory body will become a party to the claim. At that point, the broker in question will need to continue to pursue their case against FINRA in court. A judge will need to make a final decision on the individual issue.
Do You Need Legal Assistance?
The investor losses attorneys at the Sonn Law Group are standing by, ready to help. Our team takes on all cases on a contingency fee basis, meaning there are never any out-of-pocket costs for you. For a free review of your claim, please do not hesitate to contact our team today. We represent wronged investors throughout Florida, the United States, Mexico, Puerto Rico and South America.