FINRA’s Central Registration Depository (“CRD”) Disclosure System is designed to protect the investing public from unethical or incompetent brokers. With FINRA’s BrokerCheck website, an investor can review any registered representative’s (“RR”) record at any time. FINRA discloses every allegation made by customers against a RR, along with any statements made by Broker- Dealers about a RR’s conduct on the RR’s CRD. Under a recent update to FINRA’s rules, a RR does not even have to be named as a respondent in a complaint; he or she must simply be a “subject” of the complaint for an allegation to appear on his or her record. Often, these allegations or statements made about a RR, which are protected pursuant to a Court Order by an absolute privilege against litigation for defamation, are unfounded, but still appear on a RR’s record, damaging his or her career prospects and ability to attract new clients. However, despite the absolute privilege, a RR can take steps to have an unfounded disclosure removed from his or her record through expungement. This process is the permanent removal of an allegation from the CRD system.

Customer Complaint Expungement

FINRA Rule 2080 governs expungement of customer complaints from the CRD system. RRs seeking expungement of a customer complaint from their record must obtain an arbitration award against the Broker-Dealer and FINRA granting expungement and confirmation of the award from a court of competent jurisdiction. The Broker-Dealer and FINRA must both be named as parties to the court proceedings, unless FINRA waives this requirement for a variety of possible reasons. The rule provides for several grounds on which an allegation can be expunged. In order to have an allegation expunged, one must prove:

  • The claim, allegation, or information is factually impossible or clearly erroneous.
  • The registered person was not involved in the alleged investment-related violation; or,
  • The claim, allegation, or information is false.
Conway & Conway’s broker attorneys advocate for the expungement of all types of illegitimate allegations from RRs’ CRDs.

U-5 Report and Broker Dealer Comment Expungement

Rule 2080 does not apply to information that a RR wishes to have expunged regarding termination of a RR not involving a customer complaint. RRs seeking expungement of Broker-Dealer comments on their U-5 forms (the Uniform Termination Notice for Securities Industry Registration) are not held to a formal standard. Though there is an absolute privilege against litigation for defamatory statements made by a Broker-Dealer on a RR’s U-5, a RR may commence an arbitration proceeding to attempt to have potentially defamatory language expunged. FINRA may expunge a Broker-Dealers comment if the arbitrators find it to be defamatory, misleading, inaccurate, or erroneous. A RR does not have to prove the legal elements of a defamation claim, rather, just that the statement at issue is inaccurate or false. If the statement is found to be defamatory, FINRA will expunge it without a court order. On any other grounds, a court order is required for expungement. FINRA cannot expunge a statement without providing appropriate language with which to replace it.

The attorneys at Conway & Conway will aggressively initiate actions to remove damaging accusations from RRs’ U-5s.

Arbitration Process

FINRA Rules 12805 and 13805 provide guidelines for the arbitration process. These rules require that in an arbitration for Expungement, the panel must hold a recorded hearing session on the appropriateness of the expungement. If a case involves a settlement, the panel must review settlement documents, consider the terms of the settlement, and consider the amount of payments made to any party pursuant to the settlement. If an expungement is granted, the panel must indicate which grounds from Rule 2080 serve as a basis for the expungement. All forum fees are assessed against the party requesting expungement relief. Once a panel decides to award expungement, a court of competent jurisdiction must approve and confirm the award in order for the allegation at issue to be removed from the RR’s CRD.

Conway & Conway has significant experience in this area and has represented numerous RRs in the pursuit of expungement.