FINRA MOVES TO RESTRICT EXPUNGEMENTS FURTHER
- posted: Jul. 09, 2021
After significantly raising fees to file an expungement arbitration two weeks ago, FINRA has submitted proposed rule changes to the Securities and Exchange Commission, which would drastically limit registered representatives (“RR”) to bring expungement claims
The most significant proposed rules would create a statute of limitations when a RR could request expungement and would remove the current rule selecting an arbitrator(s) through a rank and a strike process for a special arbitrator roster that would randomly assign an arbitrator.
Currently, there is no time limit to file an expungement matter. Many RR bring expungement requests many years after the disclosure. They do not realize at the time the impact a disclosure has on their financial future. As regulators continue to educate the public about BrokerCheck, disclosures could steer away prospective clients. Disclosures could limit and/or prevent being hired by a new firm and the amount of any upfront bonuses. Financially, RR may not be in a position to file an arbitration claim until sometime later.
A randomly assigned arbitrator would prevent parties to an expungement arbitration to vet arbitrators and remove for consideration any proposed arbitrator one believes lacks experience or has a perception of bias. Presently, parties can strike proposed arbitrators for any reason and rank the remaining pool. The proposed rule would eliminate any selection and be more rigid than many courts, which allows a party an opportunity to remove an assigned judge for any reason.
The proposed rule would require a RR named as a party in a non-simplified customer arbitration to request expungement during that arbitration or else forfeit the right to do so.
RR filing a straight-in request would be required to do so within two years of the underlying litigation closing.
If the disclosure did not involve litigation (e.g., the customer never filed an arbitration claim), the RR would be required to file within six years of the complaint being reported to the Central Registration Depository (“CRD”).
FINRA’s complete proposal may be found at https://www.finra.org/sites/default/files/2020-09/SR-FINRA-2020-030.pdf.
The expungement process continues to become more difficult for RR. If you are interested in seeking expungement, please call Beverly Hills attorney David Harrison at (310) 499-4732 for a free consultation. Mr. Harrison has served as in-house counsel to Morgan Stanley and has been in private practice for the last 20 years, where he has been representing financial advisors and customers in securities arbitration.