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Proposed FINRA Expungement Rule – Nice Try, But Still Comes Up Short

Samuels Yoelin Kantor LLP

It is still going to be too easy for arbitrators to grant expungment when they only hear the broker’s unchallenged testimony and evidence

Robert Banks was quoted today in Investment News Daily commenting on a proposed rule that FINRA sent to the Securities and Exchange Commission on Monday. The rule would prevent FINRA members who settle claims brought by customers from asking customers to agree not to oppose a request to expunge (or erase, in non-legal speak) the filing of the claim from the broker’s public record. FINRA deserves credit for recognizing that the expungement of customer claims from a broker’s record — which occurs all too frequently — does a disservice to investors (by sanitizing FINRA’s brokercheck reports) and regulators alike. Unfortunately, this proposed rule is yet another attempt to stop the bleeding by applying a band aid to a gaping wound. Nothing in the proposed rule prohibits brokers from requesting expungements after they settle cases, and they will continue to do so. Likewise, nothing in the rule will change the fact that the only party who appears at most expungement hearings is the one seeking the expungement. So, the expungement hearings will continue, and they will continue to be one-sided affairs. And they will continue to be granted, because it is hard to lose an expungement hearing when you have no opposition. The proposed rule is not going to fix the problem.

FINRA has made sincere efforts over the last ten years to try to fix the expungement problem. None of those efforts has worked. It is time to get serious. There are better solutions. One is to prohibit the expungement of customer claims, and allow the affected rep to write his or her response to the customer’s complaint on their disclosure reporting page. As a part of this solution, it would be fair to have customer claims expunged if there have been no other complaints after ten years. Another solution is to change the expungement standard to a presumption that expungement should not be granted, and require the requesting broker to show beyond a reasonable doubt that the claim was factually impossible. The expungement award would have to describe the evidence presented that met the beyond a reasonable doubt standard. FINRA deserves credit for continuing to work to improve the process but serious problems require serious solutions. FINRA’s latest one isn’t.

For more than 30 years Banks Law Office PC has represented investors in FINRA arbitration and in court to recover money lost due to the misconduct of brokers, accountants, financial advisers, lawyers and other professionals. If you have concerns about your investment loss please contact our office for a confidential consultation about your options for recovery.

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