Registered representatives in the securities industry play a crucial role in guiding clients through complex financial landscapes, helping them make informed decisions about their investments. Despite their best efforts, these professionals can sometimes face frivolous claims from clients. Such claims, even when baseless, can tarnish a registered representative’s record on BrokerCheck, potentially impacting their career and reputation. At Bakhtiari & Harrison, we understand the significance of maintaining a clean professional record and are dedicated to assisting registered representatives in navigating the expungement process to remove unwarranted complaints.
The Impact of Frivolous Claims
Frivolous claims can arise from misunderstandings, unrealistic expectations, or even malicious intent. Regardless of the reason, these claims can have serious repercussions for registered representatives:
- Reputational Damage: A complaint on BrokerCheck can lead to a loss of trust among current and potential clients.
- Career Implications: Employers may hesitate to hire or retain representatives with multiple complaints, even if they are unfounded.
- Emotional and Financial Strain: Defending against these claims can be stressful and costly, diverting time and resources away from serving clients.
Given these potential consequences, it’s crucial for registered representatives to understand the expungement process and how they can protect their professional integrity.
The Role of the Central Registration Depository (CRD) and BrokerCheck
The Central Registration Depository (CRD) is a centralized licensing and registration system used by FINRA, the SEC, other self-regulatory organizations, and state securities regulators. It includes administrative, regulatory, criminal history, financial, and customer dispute information about associated persons in the securities industry.
BrokerCheck, a free tool provided by FINRA, makes specific registration information from the CRD publicly accessible. This transparency is intended to help investors make informed decisions about the professionals and firms they work with. However, it also means that any complaint, regardless of its validity, can be seen by anyone.
Understanding the Expungement Process
Expungement is the process by which a registered representative can have customer dispute information removed from their CRD record, thereby clearing their name on BrokerCheck. The process is governed by specific FINRA rules designed to ensure that only information that is factually impossible, clearly erroneous, or false is expunged.
Criteria for Expungement
According to FINRA Rules 12805 and 13805, expungement can be granted under the following circumstances:
- Factual Impossibility or Clear Error: The claim, allegation, or information is factually impossible or clearly erroneous.
- Non-Involvement in Misconduct: The registered representative was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds.
- False Claims: The claim, allegation, or information is false.
Expungement Process
- Filing a Request: The registered representative must file an expungement request through FINRA’s Dispute Resolution Services (DRS) arbitration forum.
- Arbitration Hearing: An independent arbitrator or a panel of arbitrators will review the evidence and determine if the criteria for expungement are met.
- Court Confirmation: If the arbitration panel grants expungement, the decision must be confirmed by a court order.
- Updating CRD Records: Once the court order is obtained, FINRA will update the CRD record to remove the expunged information.
Recent Enhancements to the Expungement Process
Effective October 16, 2023, FINRA implemented several enhancements to the expungement process to ensure a more rigorous and transparent procedure. These enhancements include:
- Special Arbitrator Roster: Straight-in requests (those filed under the Industry Code against the firm) must be decided by a panel from a special roster of experienced public arbitrators with additional expungement training.
- Unanimous Decision Requirement: The panel must unanimously agree to grant expungement based on the narrow grounds specified in the rules.
- Strict Time Limits: Requests must be filed within two years after the close of the customer arbitration or civil litigation, or within three years of the initial reporting of the complaint in CRD if it did not evolve into arbitration or litigation.
- Mandatory Appearance and Participation: The registered representative must appear in person or via video conference at the hearing, and customers can participate in all aspects of the hearing by telephone, in person, or via video conference.
- State Regulator Involvement: State securities regulators are notified of expungement requests and can attend and participate in hearings as non-parties.
Detailed Breakdown of the Expungement Process
Filing the Expungement Request
The first step in the expungement process is filing a request with FINRA’s DRS. This request should include detailed documentation and evidence supporting the grounds for expungement. The request must clearly demonstrate that the complaint meets one of the criteria for expungement as specified by FINRA rules.
Arbitration Hearing
Once the request is filed, an arbitration hearing is scheduled. During the hearing, both the registered representative and the customer (if participating) will present their cases. The arbitrators will carefully evaluate the evidence and testimony to determine whether the criteria for expungement are satisfied.
For straight-in requests, a special panel from the arbitrator roster is selected to ensure impartiality and expertise. The process is designed to be thorough and fair, providing both parties an opportunity to present their arguments.
Court Confirmation
If the arbitrators grant expungement, the decision must be confirmed by a court if it is a customer-related case. This step adds an additional layer of scrutiny, ensuring that only legitimate expungement requests are approved. The registered representative must file a petition with a court of competent jurisdiction to confirm the arbitration award.
Updating CRD Records
After obtaining a court order, the final step is to submit the order to FINRA. FINRA will then update the CRD records to reflect the expungement, effectively removing the complaint from the registered representative’s BrokerCheck report. This update helps restore the registered representative’s professional reputation and ensures that only accurate and relevant information is available to the public.
The Importance of Professional Legal Assistance
Navigating the expungement process can be complex and daunting. It requires a deep understanding of FINRA rules, meticulous preparation of documentation, and effective presentation of the case during arbitration. Given the stakes involved, it’s crucial for registered representatives to seek proficient legal assistance.
At Bakhtiari & Harrison, we are adept at representing registered representatives facing frivolous claims. Our experienced attorneys have a proven track record of successfully navigating the expungement process, ensuring that our clients’ professional records remain untarnished. We understand the intricacies of FINRA rules and the expungement process, and we are dedicated to providing the highest level of legal support to our clients.
Case Studies: Successful Expungements
To illustrate the importance and effectiveness of the expungement process, let’s look at a few case studies where Bakhtiari & Harrison successfully assisted registered representatives in removing frivolous claims from their records.
Case Study 1: Allegation of Unauthorized Trading
A registered representative was accused of unauthorized trading by a disgruntled client. The representative had clear documentation showing that all trades were authorized and in line with the client’s investment strategy. We meticulously prepared the expungement request, presented compelling evidence during arbitration, and successfully obtained a decision for expungement. The court confirmed the award, and the representative’s record was cleared.
Case Study 2: Misunderstanding Over Investment Performance
Another client accused a registered representative of misrepresentation regarding the performance of a particular investment. In reality, the investment performed as expected, but the client misunderstood the nature of the investment’s returns. We provided detailed explanations and evidence during the arbitration hearing, leading to a FINRA arbitration award for expungement. The court confirmation followed, and the representative’s record was updated.
Case Study 3: Frivolous Complaint Due to Market Downturn
During a market downturn, a client filed a complaint alleging poor advice and negligence. The representative had thoroughly documented the risk disclosures and the client’s informed consent. We presented this evidence during arbitration, demonstrating that the complaint was baseless. The arbitration panel granted expungement, which was subsequently confirmed by the court.
How Bakhtiari & Harrison Can Help
At Bakhtiari & Harrison, we are committed to protecting the rights and reputations of registered representatives. Our services include:
- Proficient Legal Advice: We provide comprehensive legal advice tailored to the unique circumstances of each case.
- Documentation Preparation: We assist in preparing all necessary documentation for the expungement request, ensuring that it meets FINRA’s stringent requirements.
- Representation During Arbitration: Our experienced attorneys represent clients during arbitration hearings, presenting compelling cases to arbitrators.
- Court Proceedings: We handle the court proceedings required to confirm arbitration awards, ensuring a smooth and efficient process.
- Ongoing Support: We offer ongoing support and guidance throughout the expungement process, keeping clients informed and confident every step of the way.
Contact Bakhtiari & Harrison Today
If you are a registered representative facing a frivolous claim, don’t let it damage your career and reputation. Contact Bakhtiari & Harrison today for proficient legal assistance in navigating the expungement process. Our dedicated team is here to help you clear your name and maintain your professional integrity. Visit our website or call us at 310-499-4732 to schedule a consultation. Let us help you protect your future and your career.