In the securities industry, it is essential for a broker to keep their record with Central Registration Depositary as clean as possible from customer complaints and other negative disclosures. Given the vast arrays of product problems that have arisen in recent years, may brokers have seen their records tarnished with numerous customer complaint disclosures arising out of product problems. Examples of product problem cases in the last few decades, include, limited partnerships in the early 1990s, and more recently, Auction Rate Securities and Lehman Principal Protected Notes.
Expungement is available for brokers who are seeking to have their product problem-related customer complaints removed from their records. Pursuant to FINRA Rule 2080, a broker is able to seek expungement for one of three bases:
(1) the claim, allegation or information is factually impossible or clearly erroneous;
(2) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
(3) the claim, allegation or information is false.
In product problem cases, it is most likely that a broker will base his/her expungement request on (2) because it is the firm, not the broker which is involved in the alleged investment-related sales practice violations.
What is the process to seek expungement? There are several options. First, if the broker is named in a FINRA arbitration as a Respondent, he/she may seek expungement relief as part of their pleadings. However, in many cases, firms settle customer complaints before they become arbitrations, or customers do not name brokers in arbitrations. In that instance, a broker may seek expungement of several customer complaints at once by filing a FINRA arbitration and naming the customers who brought the complaints as Respondents. If the customers are willing to sign a stipulation that they do not object to the arbitration, or the removal of the disclosure from the broker’s record, it will make the process much smoother for the broker. Our firm has experience handling these types of expungements and is able to properly guide brokers through the process. Please contact us at (212) 696-1999, if you are a broker seeking expungement of several customer complaints that arose because of a product problem.