Expungement

When a broker is terminated by his/her brokerage firm, the firm is required to file a Form U-5 (Uniform Termination Notice for Securities Industry Registration) with the Financial Industry Regulatory Authority (“FINRA”). The form, which is filed within 30 days of termination, provides the reason(s) for the termination and identifies whether the employee was fired, voluntarily left, or was permitted to resign. For example, the U-5 must detail whether the employee was the subject of customer complaints or under internal or external criminal investigation for alleged violation of the securities laws, as well as industry rules and regulations. The Form U-5 is stored in FINRA’s Central Registration Depository (“CRD”) and made accessible to all FINRA member firms. When the brokerage firm includes false, misleading or derogatory information on the Form U-5, the broker can seek to remove such information from his/her Form U-5 by, among other things, requesting expungement of the defamatory information on the FINRA Form U-5.

Freiberger Haber NYC Expungement Attorneys

Expungement is a two-part process. The aggrieved broker files an arbitration claim through the FINRA Dispute Resolution Process requesting expungement of the complained of entry in the CRD record system. FINRA will hold a hearing to review the merits of the request to determine whether the evidence provided by the broker satisfies one or more of the grounds for expungement under FINRA Rule 2080.

In arbitrations resulting in a settlement of a customer claim, the presiding arbitration panel must consider the amount paid to the Compliant, “any other terms and conditions of the settlement that might raise concerns about the associated person’s involvement in the alleged misconduct before awarding expungement,” (FINRA Notice to Members 08-79), and the grounds for expungement under FINRA Rule 2080.

Rule 2080 provides three narrow grounds on which an expungement may be granted:

The claim, allegation, or information is factually impossible or clearly erroneous
The registered representative was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; or
The claim, allegation, or information is false.

Next Steps

If the broker is successful in the arbitration stage, then he/she must file a petition with a local state or federal court, naming FINRA as a defendant, requesting that the court confirm the arbitration award granting the expungement. Upon reviewing the petition, the court will then order FINRA to comply with the order by expunging the record in question from the CRD system. However, it is important to note that this second step is necessary because FINRA will not voluntarily expunge information, even if it is the product of a settlement agreement, absent a court order directing expungement of the record in question from the CRD system.

Contact Our New York Expungement Attorney

Expungement is an “extraordinary remedy that arbitrators should recommend only under appropriate circumstances.” As such, obtaining an order is not easy. It involves a rigorous process in which claimants must present evidence that falls squarely within the boundaries of the three narrow grounds for record expungement. Freiberger Haber LLP provides representation to registered representatives or their firms involved in expungement process. For more information, contact Freiberger Haber LLP.