The U.S. Securities and Exchange Commission (“SEC”) has approved a Financial Industry Regulatory Authority (“FINRA”) rule that could make it tougher for brokers to expunge customer complaints from their records in settled arbitration cases. Rule 2081 bars brokers from making settlements with customers contingent upon the customer’s consent to not oppose the expungement of the dispute from the public record of the broker.
A record of arbitration complaints filed against brokers is kept as a part of the CRD system. The CRD system contains data about registered representatives and members, including their registration, employment, and personal histories. It also includes disclosure information pertaining to civil judiciary, disciplinary, and regulatory actions, criminal matters, and data about customer disputes and complaints.
The public can access this data through FINRA’s BrokerCheck website. Brokers can have a customer dispute erased from the CRD system and BrokerCheck only through a court order that confirms there has been an arbitration award that recommends such relief.
According to Investment News, a Public Investors Arbitration Bar Association-released study demonstrated that from 2007 to 2009, expungement requests were approved in 89% of settled cases resulting in settlements or awards. From May 2009 through 2011 that figure rose to 96.9%.
Arbitrators are told to inquire as to whether expungement was part of the terms of a settlement. Usually, when such a condition exists between parties it is never put in writing.
The purpose of the new FINRA rule is to make sure that full and reliable customer dispute data remains available to the public, brokerage firms, and regulators. Still, the SEC feels that there is more the self-regulatory organization should do.
In addition to approving the rule change, the SEC is calling on the SRO to review its expungement procedures and rules and figure out whether additional rulemaking is needed to make sure that expungement only occurs in exceptional situations.
Our FINRA arbitration lawyers represent investors in recouping their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
SEC approves Finra rule limiting expungement, InvestmentNews, July 23, 2014
SEC Approves FINRA Rule to Prohibit Conditioning Settlements on Expungement, FINRA, July 23, 2014
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FINRA Sees 10% Rise in Arbitration Cases, Puerto Rico Bond Claims A Factor, Stockbroker Fraud Blog, April 27, 2014
FINRA Seeks to Limit Definition of Public Arbitrator, Stockbroker Fraud Blog, February 11, 2014
Lawyers, Investor Advocates Want to Know More About SEC Supervision Of FINRA’s Arbitrator Selections, Institutional Investor Securities Blog, December 2, 2013