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FINRA publishes additional guidance on expungement

On Tuesday, October 15, 2013, FINRA Dispute Resolution published the following guidance and reminder for arbitrators when considering expungement requests.

Extraordinary Nature of Expungement Relief — Expungement is an extraordinary remedy that should be granted only under appropriate circumstances. Information should be expunged only when it has no meaningful investor protection or regulatory value. Once information is expunged from the CRD system, it is permanently deleted and thus no longer available to the investing public, regulators or prospective broker-dealer employers.

Role of Arbitrators in Expungement Cases — Arbitrators have a unique, distinct role when deciding whether to grant a request to expunge information from a broker’s CRD record. In making these determinations, arbitrators should consider the importance of maintaining the integrity of the information in the CRD system. Ensuring that CRD information is accurate and meaningful is essential to investors, who may rely on the information when making decisions about brokers with whom they may conduct business; to regulators, who rely on the information to fulfill their regulatory responsibilities; and to prospective broker-dealer employers, who rely on the information when making hiring decisions.

Given this significant role, arbitrators should ensure that they have all of the information necessary to make an informed and appropriate recommendation on expungement. Thus, arbitrators should request any documentary or other evidence they believe is relevant to the expungement request, particularly in cases that settle before an evidentiary hearing or in cases where only the requesting party participates in the expungement hearing.

BrokerCheck Report Review — Arbitrators should ask the broker seeking expungement (or the party seeking expungement on a broker’s behalf) to provide a current copy of the BrokerCheck® report. Arbitrators should carefully review the report when considering whether expungement is appropriate. Arbitrators should pay particular attention to the “Disclosure Events” section of the report.

Importance of Providing an Explanation for Granting Expungement  — Rules 12805 and 13805 require arbitrators to provide a written explanation of the reasons for finding that one or more of the Rule 2080 grounds for expungement apply to the facts of the case before them. Arbitrators recommending expungement should ensure that the explanation is complete and is not solely a recitation of one of the Rule 2080 grounds or language provided in the expungement request. Specifically, arbitrators should identify in the award the reason(s) for granting the request and any specific documentary or other evidence that they relied upon in granting expungement.

Asking Whether Settlements Are Conditioned on Agreements Not to Oppose Expungement — Arbitrators should inquire and fully consider whether a party conditioned a settlement of the arbitration upon agreement not to oppose the request for expungement in cases in which the investor does not participate in the expungement hearing or the requesting party states that an investor has indicated that he or she will not oppose the expungement request.

For additional information: