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Lawyers trade association supports new FINRA rules to improve expungement process

On Behalf of | Nov 2, 2023 | FINRA Compliance

A lawyers trade association says it applauds new reforms aimed at making it more difficult for brokers to expunge client disputes from their records, AdvisorHub reports.

The Public Investors Advocate Bar Association (PIABA) called attention to the rules changes enacted by the Financial Industry Regulatory Authority that recently took effect.  FINRA’s plan was developed in response to concerns that it had become too easy for brokers to clear customer complaints from their disciplinary history contained in the Central Registration Depository.

The PIABA released results of a study showing that requests for the expungement of customer complaints against their investment brokers were still being granted by FINRA arbitrators at a rate of 90%.

Under the new FINRA rules, a special roster of arbitrators will hear so-called ‘straight-in’ expungement requests. These are separate arbitration claims filed by a registered representative against a member firm or the customer. The claims will now be decided by a three-person panel randomly selected from a roster of experienced public arbitrators with enhanced expungement training rather than the previous option of having a sole arbitrator.  State securities regulators will have the opportunity to participate in straight-in expungement arbitrations and oppose the requests when appropriate.

In light of the revised system, the PIABA Foundation said it will be partnering with the Alabama Securities Commission to offer a new training program for state securities regulators to help facilitate collaboration among states and assist them in effectively participating in FINRA arbitrations. The PIABA Foundation also announced the expansion of its pro bono legal program to represent investors in expungement arbitrations.  The organization said most expungement requests had gone unopposed because no one was present to challenge the request. Customers participated in only about 10% of the evaluated cases.

The PIABA said the new FINRA rules have the potential to fix what it called the long-standing problems with the expungement process.

“PIABA and the Foundation have conducted multiple studies analyzing FINRA’s expungement
awards and it is clear that if expungement decisions are going to be in the hands of FINRA’s
arbitrators, all parties with an interest in the outcome need to participate to present evidence for and against expungement,” said Jason Doss, Founding Director, PIABA Foundation, report co-author and Atlanta-based attorney.  “We welcome state securities regulators’ participation to the arbitration process because it is their regulatory information that is being erased.”

The new rules, which were approved by the SEC, also include prohibiting parties from agreeing to a smaller panel or from striking arbitrators, and setting time limits on when brokers can file expungement requests. Brokers will be required to make their expungement requests within two years after the closing of an arbitration or litigation, or three years if the complaint did not result in a formal proceeding, reducing the window of time brokers have to seek the erasures.

The attorneys at Lewitas Hyman have considerable experience with FINRA’s procedures for expunging false, defamatory and erroneous disclosures from a registered representative’s record. This experience includes seeking expungement in existing FINRA customer and employment arbitrations, as well as filing separate FINRA arbitrations for the sole purpose of seeking expungement. If you have any concerns about problematic disclosures on your CRD record or those that are viewable on FINRA’s BrokerCheck portal, contact Lewitas Hyman at (888) 655-6002 or through our online contact form for a free consultation.