FINRA Expungement Summary
Expungement of information made on a Financial Industry Regulatory Authority (“FINRA”) broker’s official record, the Central Registration Depository (“CRD”) is important because the information set forth in the CRD can be viewed by prospective clients and employers. FINRA’s BrokerCheck Web site, which obtains its information from the CRD, is accessible to the public, making a broker’s personal information easily assessable to friends, family members, creditors, law enforcement and attorneys.
The Uniform Termination Notice for Securities Industry Registration, (also referred to as “Form U5”) requires a broker-dealer to truthfully represent various facts when a broker ceases employment with the broker-dealer. When a broker is terminated for any reason, FINRA rules require the broker-dealer to provide a “reason for termination” on the broker’s Form U5. If the separation was contentious, or if the broker was “permitted to resign,” the broker-dealer must set forth a reason. The broker-dealer could set forth a innocuous reason, such as “mutual agreement” or it can represent a more detailed reason for which it deems accurate, even if untrue.
Removing Inaccurate Information
A broker-dealer has thirty (30) days from a brokers last day of employment to file a Form U5. A broker may not know what is set forth on the Form U5 until it is filed. Inaccuracies set forth on a broker’s Form U5 can cause substantial financial damages to a broker. Removing inaccurate, unfair or defamatory language generally requires filing a FINRA arbitration, requesting expungement.
A FINRA arbitration filed by a broker requesting expungement can also include other potential claims, including failure to receive compensation (bonus, commission, personal days) and employment discrimination. Some states provide damages for defamatory language set forth in a Form U5.
In New York and California, a broker can obtain expungement of some information set forth on a Form U5 if the broker proves defamation. FINRA arbitration panels have discretion to award damages and, contrary to formal legal proceeding, arbitration panels are not always required to issue detailed written decisions, rendering appeals rare, but possible.
The Form U5 is used by FINRA to determine whether a broker potentially violated any FINRA regulations or laws. As such, one important purpose of the form is to alert FINRA of potential misconduct and enable it to investigate, sanction and deter misconduct by brokers.
There are many instances when a broker-dealer issues a Form U5 that contains inaccurate or misleading information. In such situations, our firm represents the broker during the expungement process. Our firm appreciates that inaccurate information can cause substantial financial damages because future employers and clients will have access to the incorrect information.
In a recent case, our firm represented a broker accused of being involved in a theft of money. Our firm filed an arbitration claim on behalf of the broker, requesting expungement and alleging various other employment related causes of action. All causes of action were resolved prior to hearing, except for the broker’s expungement request. After two (2) days of in-person hearings, the Arbitration panel issued an award in favor of our firm’s client.
FINRA’s Expungement Procedure
FINRA Rules pertaining to expungement vary depending upon the information being requested to be removed. Different procedural rules apply to customer related complaints, compared to disputes between brokers and broker-dealers.
Expungement of Customer Complaint Information
FINRA Regulatory Notice 08-79 set forth the expungement procedure rule:
1. Hearing – The entire arbitration panel must conduct a recorded hearing by telephone or in person regarding the expungement request.
2. Settlements – If parties entered into a settlement agreement, the arbitrators must review the settlement documents and consider the amount paid to any party. The arbitrators must consider any terms and conditions of the settlement that regarding the broker’s involvement in the alleged misconduct before deciding whether to award expungement.
3. Limited Grounds for Ruling – The panel must set forth the grounds for expungement for which the expungement order was based. It must then provide a brief written explanation of the reasons for ordering record expungement.
Basis for Expungement
i. The claim, allegation or information is factually impossible or clearly erroneous;
ii. The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or,
iii. The claim, allegation or information is false.
4. Mandatory Fees – The arbitrators must assess fees against the parties requesting expungement relief in which the sole issue to be determined by the arbitrators is the determination of the appropriateness of expungement.
Once an expungement order has been issued by the arbitrators (within their Award), the broker must have the Award confirmed in court as a judgment, giving FINRA an opportunity to intervene. Once the Award has been confirmed as a judgment, the broker must then serve a copy to the CRD so that the existence of the arbitration can be expunged from the broker’s official record.
Time Limits to Request Expungement of FINRA Customer Disputes
A broker can seek expungement of old customer complaints on a CRD report. For each claim, a new arbitration filing would be required, as well as a new Uniform Submission Agreement.
FINRA Rule 12206 provides that “[n]o claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim. The panel will resolve any questions regarding the eligibility of a claim under this rule.”
As such, a broker must file a Statement of Claim (complaint) within six (6) years of the customer’s complaint.
Recent FINRA Expungement Claims and Decisions
Recent FINRA Expungement Decisions
NEW YORK - Sept. 9, 2015 - PRLog -- Attorney Brittany Weiner, of the law firm Imbesi Law P.C., successfully represented a FINRA broker that requested expungement of several customer complaints that alleged fraud from FINRA’s CRD, her Form U4 and BrokerCheck. Read more...
NEW YORK - Sept. 9, 2015 - PRLog -- FINRA Dispute Resolution Arbitration Number 13-03642
Associated Person v. Member
Attorneys Brittany Weiner, Steven Fingerhut and Vincent Imbesi of Imbesi Law P.C., represented Claimant, a former employee of Respondent.
Attorneys Lawrence Sandak and David Reid of Proskauer Rose LLP represented Respondent J.P. Morgan Securities, LLC ("J.P. Morgan").
Claimant alleged that J.P. Morgan falsely accused her of misconduct which resulted in the termination of her license registration with FINRA. According to Claimant’s attorneys, J.P. Morgan refused to resolve the claim even after Claimant offered to not demand any monetary compensation ($0) and only requested amended words on her Form U5.
In addition to the recommended changes on Claimant’s Form U5, the arbitration panel assessed 100% of the hearing session fees to J.P. Morgan, totaling $13,200.00. J.P. Morgan was also mandated to pay $8,550 in member fees. The total amount equaled $21,750.00.
“The fact that J.P. Morgan refused to resolve the claim even after Claimant offered to accept no money, just a change of wording, was a huge mistake by J.P. Morgan, which most likely resulted in payment of legal fees and FINRA arbitration costs that could have been avoided,” Mr. Imbesi commented.
After the arbitration panel issued the written award, Lawrence Sandak, legal counsel for J.P. Morgan, issued a letter to the Regional Director of FINRA demanding the panel change its expungement determination. In his letter, dated August 26, 2015, Mr. Sandak set forth his version of the testimony that occurred during the hearing to support his demand.
Mr. Sandak concluded his letter by requesting the Regional Director take all steps necessary to modify the panel’s expungement award and “to more fairly allocate fees and costs between the parties.”
FINRA DENIES J.P. MORGAN’S REQUEST
FINRA responded to Mr. Sandak’s request on September 3, 2015 by written correspondence. The response explained to Mr. Sandak that the arbitrators heard testimony on five (5) separate days and the panel issued a recommendation to modify certain section of Claimant’s Form U5.
The letter informed Mr. Sandak, “I understand you are unhappy with the panel’s decision to recommend the modification of Claimant’s Form U5. However, as a neutral administrator, FINRA does not have any input into the outcome of arbitrations.” FINRA’s letter represented that, “FINRA and its staff have no authority to modify or overturn an arbitration panel’s determinations. “
The letter concludes, “I am sorry you are dissatisfied with the outcome of this case.”
“It appears J.P. Morgan was not happy with the panel’s decision and attempted to have it changed pursuant to FINRA Rule 13905, but failed to sufficiently allege a basis to alter the award,” said Mr. Imbesi. He concluded, “Since Claimant attempted to change her Form U5 before even filing an arbitration claim and during the hearing, I can understand why J.P. Morgan is not happy with the outcome – it could have saved money by resolving the issue quickly and fairly.”
Brittany Weiner, a partner of Imbesi Law P.C., represents both customers and brokers in FINRA arbitration, including issues involving expungement of inaccurate information maintained in the CRD and on Form U5s. In some jurisdictions, this press release could be deemed as Attorney Advertising. Prior results to not guarantee future success.
NEW YORK - October, 9, 2015 - PRLog --SourceMedia cites attorney Brittany Weiner's opinion about FINRA arbitration after her latest win
After winning two separate FINRA arbitrations in the previous month in which the FINRA brokers were awarded expungement, Brittany Weiner speaks about Morgan Stanley's newly expanded arbitration system.
NEW YORK - Oct. 9, 2015 - PRLog -- Morgan Stanley's (“Morgan”) newly expanded arbitration system, known as CARE, requires employees to submit employment disputes to binding arbitration if they did not opt out of the program before October 3, 2015.
Some disputes between Morgan and its FINRA advisors are arbitrated using FINRA’s arbitration system, but other disputes, such as potential claims of discrimination or wrongful termination, will now be resolved through the company's CARE program.
Some FINRA broker-dealers have been requiring some of their brokers to submit to binding arbitration for employment related claims for several years, according to Vincent Imbesi, whose firm represents employees and employers involved in employment disputes subject to mandatory arbitration. Mr. Imbesi claims that J.P. Morgan Securities LLC (“J.P. Morgan”) has utilized a similar system for is FINRA associated persons.
Brittany Weiner, a partner of the law firm Imbesi Law P.C., has recently represented several J.P. Morgan FINRA brokers that were subject to both a FINRA and employment mandatory arbitration clause. Ms. Weiner recently won expungement for a J.P. Morgan FINRA broker that was subject to mandatory arbitration. The award required J.P. Morgan to pay 100% of the arbitration fees, which totaled $21,750.00.
Dissatisfied with the FINRA arbitration panel’s decision, counsel for J.P. Morgan, Larry Sandak, a partner of Proskauer Rose LLP, requested that FINRA’s Regional Director “remedy” the alleged error made by the three FINRA arbitrators and change the arbitration award to prohibit the broker from obtaining expungement and making the employee pay for some of the arbitration fees. Mr. Sandak complained that J.P. Morgan’s rights were violated because his client did not receive a “full and fair hearing.”
In response to Mr. Sandak’s demands, FINRA denied his request to reallocate any of the arbitration fees against the former employee and denied his request to amend the award to prevent the expungement of the broker’s Form U5.
“It’s ironic that a broker-dealer would complain about its inability to receive a full and fair hearing when it required the dispute be resolved with arbitration, which has more limited discovery compared to a civil lawsuit,” Mr. Imbesi added.
Morgan’s requirement that its employees submit to mandatory arbitration for employment disputes is not a novel or absolute concept. Nor are all mandatory arbitration clauses enforceable.
SourceMedia, distributors of onwallstreet, a daily publication about the securities industry, requested Ms. Weiner’s opinion for an article about Morgan’s recent decision to require mandatory arbitration and the likelihood an employee that failed to opt out of the agreement would be bound by the terms.
In the article, Ms. Weiner claimed, “it would be necessary to find grounds to charge that the agreement was unconscionable or unfair.”
"They're not left with no option, but it's certainly a different option than going to court," she added.
The complete SourceMedia can be viewed at http://lawicm.com
Imbesi Law P.C. represents both customers and brokers in FINRA arbitration, including issues involving expungement of inaccurate information maintained in FINRA’s CRD and on a Form U5.