When a broker-dealer files a Form U4 or U5 with the Central Registration Depository (CRD), customer disputes, terminations, and other disclosures become part of an advisor’s public record and appear both on the advisor’s CRD record, as well as their BrokerCheck profile.
FINRA asserts that its purpose for publishing customer disputes to BrokerCheck and the CRD is so that investors can make informed choices about advisors and firms. While legitimate customer disputes do exist and do get published to BrokerCheck and the CRD, unfortunately, so do frivolous and meritless claims. Regardless of the accuracy of the allegations, disclosures will appear on the advisor’s public records permanently.
One avenue for relief exists: seeking expungement through FINRA’s arbitration system. With few exceptions, an advisor may seek expungement of disclosures once, meaning that each advisor has one shot at removing a disclosure from their permanent record.
Within FINRA’s arbitration system, an advisor files a Statement of Claim, naming the reporting firm as Respondent and requesting expungement of one or more customer disputes. A telephone or in-person hearing is held, and an arbitrator or panel determines whether the disclosure meets the standards of FINRA Rule 2080 — that the claim, allegation, or information is false, clearly erroneous, or factually impossible or that the advisor was not involved in the alleged activity. When expungement is granted, the arbitrator or panel issues an award that includes an explanation of the basis for recommending expungement.
FINRA considers expungement to be an “extraordinary remedy” and continually demonstrates its intention to make expungement increasingly difficult to achieve. For example, its recently-proposed amendments to its Code of Arbitration Procedure include the requirement of a unanimous decision from a three-person panel (versus the current option for a sole arbitrator) and a limited time frame of one year, during which an advisor may request expungement. Because of this, it is in advisors’ best interests to seek expungement of any unwarranted disclosures as soon as possible, in order to keep frivolous and unwarranted claims from permanently tarnishing their reputation.
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