Since the June 2016 hyperlink rule, FINRA brokercheck has an expanded role for client / investors who wish to find out about their advisors record with other clients and member firms.
Its anticipated that investors will use this tool more and more going forward to search advisor information as well as firm history and its officers. While, the hyperlink rule didn’t change information available on FINRA Brokercheck; it does drive more traffic to brokercheck and create greater awareness of the tool. The byproduct of which is; informed investors that know little about facts of a case which may have been a frivolous claim or a dropped dispute.
Not to discount legitimate claims against advisors who’ve made grievous mistakes or falsified records. Expungement under Rule 2080 is only available where factual basis exists. Still many advisors who would qualify for expunging a claim do not pursue it. Bottom line investor disputes and claims hurt an advisors relationship with their employer and their clients, and can ruin chances of transitioning to another firm.
If you’re an advisor with a frivolous customer claim against you, you understand how much harder you now have to work to gain the trust of each and every client. Some advisors have claims going back years from dropped cases which affect their earnings today. These advisors may find themselves in difficult situations where an investor feeling the sting of past losses tries to get recourse through a nuisance claim. Others investors may ”follow the herd” and assume their investment was mishandled the same as past clients. It’s an uphill battle and a hard one to win.
Whatever hardship past claims may be causing today, there is a solution for advisors that plan ahead and are willing to lose some of their sanity to hang on to their good reputation. Below is information about requesting an expungement and how the process works.
Keep in mind, complaints are a serious matter for advisors and firms. At July 2016, the rolling 12 month tally of AWC forms issued is 1027 – Accept, Waiver, and Consent form (AWC).
In 2014, FINRA brought 1,397 disciplinary actions against registered individuals and firms, and levied $134 million in fines.
FAQs – Frequently Asked Questions about Expungement Rule 2080
What may be expunged under rule 2080?
Rule 2080 covers customer disputes. Disputes between clients and firms and advisors reported on U4 or U5 “Compliant / Arbitration / Civil litigation Disclosures”. Specific rules apply as to the nature of the dispute, clearly not every dispute can qualify for expungement.
Requesting an expungement under rule 2080
There are 2 common ways to request an expungement. 1) Members and associated persons must obtain a court order directing expungement, 2) or get an expungement directive through dispute arbitration.
Requesting an expungement under rule 2080 while in arbitration
An advisor in arbitration that is seeking an expungement should request expungement in their answer, counterclaim, or statement of claim. Arbitrators will decide whether or not they agree with the request based on one or more of these factors:
- The claim or allegation is factually impossible or clearly erroneous
- The registered person was not involved in the alleged investment related scheme or violation
- The claim or allegation is false
Assuming the arbitrator agrees with the expungement request, the advisor would then seek expungement through a written request to FINRA. FINRA will review documents related to the request and either grant or deny the expungement. Note: Recent trends show FINRA approves 90% of arbitration approved expungement requests.
There are also opportunities to gain an expungement once a settlement has been reached or a settlement out of arbitration has been made. Expungement can be a difficult process to negotiate out of arbitration and generally requires expertise from an experienced professional.
Requesting “Expungement only” or Expungement after a case is settled and everyone has moved on
There are a few parts to requesting expungement only and those who have tried will agree it is not easy to do.
First, Rule 2080 requires that when seeking “expungement only” a court hearing is required. FINRA must also be named as a party to the petition and be served with relevant documents, unless FINRA waives those requirements. It is easier to gain expungement while in arbitration because the process there is designed for FINRA to rely on the arbitrators and courts to decide if expungement is appropriate, thereby FINRA waives the requirement to be a party in a court hearing.
Regardless, expungement requested after the fact requires a court hearing and customers of the compliant, or their counsel, must be notified and given an opportunity to participate at the hearing; in person, by telephone, or in writing. FINRA will examine the request and determine whether to oppose or approve the expungement based on the reason(s) and supporting documentation.
Requesting a Waiver from FINRA
Waivers can be requested from FINRA at:
Rule 2080 – Expungement Notice / Waiver Request
FINRA Registration and Disclosure Department – 3rd Floor
9509 Key West Ave.
Rockville, MD 20850
Information available to the public through BrokerCheck
Includes; a registered representative’s employment background, criminal information, disciplinary information and customer complaints. The public has access to about complaints such as; the allegations in the client complaint, the product, and any settlement amount. An example may look like the following:
Customer Dispute – Settled (Example)
Allegation: Alleged unsuitable investment and violation of securities laws in September 2013. The action was settled with a compromise with counsel of a lawyer.
Alleged Damages: $75,000
Settlement Amount: $25,000
How long does it typically take to complete getting an expugement?
The estimated amount of time the process takes is up to 10 months.
RND Resources Inc assists firms needing Litigation Support and Expert Testimony
Expert Testimony and Litigation Consulting are backbones to handling compliance support services for broker dealers and RIAs. Each month FINRA releases a report of principals, registered representatives, and member firms who are under investigation or have a case or compliant filed against them. We assist broker-dealers and others involved in these cases throughout the United States; including referrals we receive from leading law firms, compliance consultants, and institutions. Learn more about RND Resources Litigation Support Services for Firms and Principals
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