FINRA proposes new expungement rules for U-4 and U-5 filings

Posted by on Apr 10, 2012 in Marc's Blog | Comments(0)

FINRA has proposed rule amendments to the customer and industry arbitration codes. These amendments would codify procedures to allow registered representatives who are not named in arbitrations to receive an expungement order from the panel. The current procedure is a hodgepodge of common sense and invented procedures to allow for an expungement request.

Most recently, I filed a Notice of Appearance on behalf of a client who was not named in an arbitration for the sole purpose of obtaining an expungement of the customer claim. FINRA procedures are silent on what to do and it took a little bit of work to get the request processed. These new rules would have allowed my appearance, but only if there was compliance with the procedures.

And that’s where the potholes can be found. The procedures require that the broker who is not named, called the “unnamed person” in the proposed rules, to receive notice when the U-4 or U-5 is amended. The broker then has 180 days from receipt of that notice to file a Notice of Intent to seek expungement. The broker can do this on his or her own or a lawyer can do it. The rule seems to contemplate that a failure to file the Notice of Intent within 180 days will result in a lifetime waiver of the right to obtain the expungement.

Then, after the case is closed, either through hearing or settlement, the broker has 60 days to notify FINRA that she or he will be seeking an expungement. If there is an expungement request, then the chairperson will normally handle the hearing. It is unclear whether a new matter is opened for the expungement, but FINRA makes reference to “IN RE:” proceedings, so it appears that this will be the case. There is also a waivable $750 filing fee for the expungement proceeding and a hearing with the chairperson.

If the broker does not request the expungement hearing under these procedures, it appears that there is no opportunity to obtain an expungement in the future. But the rule is not clear on this point. However, what is clear is that a broker who is named as a party will only be able to obtain an expungement within the pending case. This would be obtained as part of the relief in the case, as it usually is accomplished now, but will not be available after the case is over.

As always, brokers need to be vigilant about what is contained on their CRD and Brokercheck records. Any opportunity to obtain an expungement is one more opportunity to reduce the number of, or eliminate, complaints on a registered representative’s record. The regulatory safeguards are in place to ensure that expungements are properly granted.

That’s the unexpunged view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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