A FINRA arbitration panel out of Louisville, Kentucky recently granted the request of former UBS registered representative Harry M. Hadden III (“Hadden”) to expunge eight (8) customer complaints from his Central Registration Depository (“CRD”) record related to the sale of certain Lehman Brothers Structured Products during the financial crisis that began in 2007.

Under FINRA’s Code of Arbitration Procedure Rules 13805 and 2080, an arbitration panel may grant expungement of customer complaints from registered representatives CRD’s if, amongst other things, “the registered person was not involved in the alleged investment-related sales practice-violation, forgery, theft, misappropriation or conversion of funds.”

In addition to seeking expungement of the customer complaints, Hadden asserted claims for breach of contract, fraud, negligence, and tortious interference with prospective business advantage relating to his sales of Lehman Brothers 100% Principal Protection Notes (“Lehman Notes”).  More specifically, he alleged that UBS failed to properly educate its employees about the risks involved with the Lehman Notes, failed to perform appropriate due diligence on the Lehman Notes, and deliberately concealed negative information about Lehman Brothers Holding, Inc. while continuing to recommend that its representatives sell the Lehman Notes to their conservative investors.  Hadden’s monetary claims were based on allegations that the underlying reportable customer complaint caused irreversible damages to his professional reputation.

The Panel issued an Award denying Hadden’s monetary claims, but granting his request for the expungement of all eight (8) customer complaints from his CRD registration record.  Per FINRA Rule 2080, the panel based its ruling on the affirmative finding of fact that Hadden was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriate or conversion of funds.  Among the Rule 2080 findings supporting expungement, the Panel found that UBS had an “institutional failure to adequately train financial advisors,” referencing a 2005 Notice to Members regarding relevant training.  The Panel further found that “there was no documentation of attendance, testing or assessment concerning educational training for the Lehman Notes and there was no mandatory training for [UBS] financial advisors as set forth by FINRA in the 2005 Notice to Members,” until 2008 and the training done before 2008 was “production oriented.”

FINRA arbitration panels have similarly granted expungement in other matters involving disclosures relating to the sale of Lehman Brothers Structured Products. Lewitas Hyman PC has extensive experience handling expungements of reportable events and can properly guide registered representatives through the process.  Please contact us at (312) 291-4600 for a no-commitment consultation if you are a registered representative seeking expungement of a CRD disclosure.

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