When a broker is named as a respondent in a customer-initiated arbitration, the arbitration claim and any allegations of wrongdoing are required to be reported on the broker’s Form U4/U5.  Brokerage firms must submit a disclosure report when a broker is the “subject of” allegations of sales practice violations made in arbitration claims or civil lawsuits, but is not a named party to the arbitration or lawsuit. Once reported, this information is recorded on the broker’s record in the Central Registration Depository (“CRD”) System and becomes available to the public upon request through FINRA’s BrokerCheck program.  Pursuant to FINRA Rule 2080, the Law Offices of David Harrison work to expunge customer complaints and other entries which brokerage firms filed improperly.

Brokers may seek to have a reference to allegations or to involvement in an arbitration removed from their CRD System records. The process of removing this information from the CRD system is called “expungement.”

Pursuant to FINRA Rule 2080, expungement must meet on of the following conditions: the claim, allegation or information is factually impossible or clearly erroneous;
the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or the claim, allegation or information is false.

FINRA Rules 12805 and 13805 provide enhanced safeguards to ensure that arbitrators have the opportunity to consider the facts that support or weigh against a decision to grant expungement. These rules also provide that expungement occurs only when the arbitrators find and document one of the narrow grounds specified in FINRA Rule 2080. Under FINRA Rules 12805 and 13805, the panel must follow the outlined procedures in order to grant expungement of customer dispute information under FINRA Rule 2080:

The arbitration panel must hold a recorded hearing session by telephone or in person regarding the appropriateness of expungement.

In cases involving settlements, the arbitration panel must review the settlement documents, consider the amount paid to any party and consider any other terms and conditions of the settlement that might raise concerns about the associated person’s involvement in the alleged misconduct before awarding expungement.

The arbitration panel must indicate which of the grounds for expungement under FINRA Rule 2080(b)(1)(A)-(C) serves as the basis for their expungement order, and provide a brief written explanation of the reasons for ordering expungement.

The arbitration panel must assess against the parties requesting expungement relief all forum fees for hearing sessions in which the sole topic is the determination of the appropriateness of expungement.

Authored by FINRA.org