Robert W. Pearce, a Florida based securities lawyer with a practice that includes representation of financial advisors answers one of the more frequently asked questions: How do I clean up my CRD or BrokerCheck record?
My name is Robert Pearce and almost every week I receive a telephone call from a stockbroker wanting to clear his or her record of a false customer complaint or other inaccurate information placed on a Form U-4 or a Form U-5 by an employer that ultimately appears on the CRD and the BrokerCheck record that is available to the public worldwide. Today, it’s more important than ever to eliminate those false claims, to make sure that the information that appears on your CRD and your BrokerCheck is accurate because employers are less willing to hire or keep those employees with many, many complaints in their employ. Similarly, when a broker tries to get registered, or even while they are registered, regulators like FINRA and state regulators can initiate actions to take away their registration in that particular state or by FINRA altogether in United States.
Now the first, the good news is that false claims filed by customers, claims
that have no merit, can be, what we call, expunged; that is, removed from the CRD and BrokerCheck. However, FINRA controls what appears on the CRD, FINRA controls the BrokerCheck and FINRA has a set of rules that dictate how those false remarks or on your U4 or your U5 are to be removed.
The most onerous set of rules relates to customer complaints. There is a policy at FINRA to discourage arbitrators from expunging customer complaints. There are certain rules that govern the expungement of customer complaints. Rule 12805, Rule 13805, and FINRA Code of Conduct Rule 2080 govern the expungement of customer complaints from brokers’ records. It’s a two-step process. At first, you have to file an arbitration claim which is generally filed against the broker-dealer that placed the mark on your record and/or the customer who filed the complaint. Sometimes these expungement proceedings take place during the course of the arbitration that the customer has filed. When the case is dismissed, you have an expungement hearing. Other times you have to file the arbitration separately after the fact and you have to win the arbitration.
An arbitration award has to be entered in your favor, ordering that the black mark be expunged in all cases. In that award and in making the decision, the arbitrators have to make express findings. They have to find that “the claim, allegation or the information is factually impossible or clearly erroneous.” For example, some customers have been known to file complaints against brokers for a time period for a transaction when they weren’t even employed at the firm and those types of claims are clearly erroneous. Alternatively, the arbitrators can make a finding that you were “not involved in the sales practice violation or alleged misconduct.” You may have had a partner that dealt with the particular customer and the partner was responsible for the misconduct that’s alleged on your CRD. If you are found not to be involved, you can get that expunged with that finding. Also, arbitrators can enter an order of expungement when they find that “the claim, the allegation or the information in a customer complaint is false.” In other words, arbitrators can decide the evidence in an expungement proceeding and conclude that it was false. If they concluded was false, they can order an expungement.
It’s not over at the point you get an arbitration award. What do you have to you do next to get rid of that customer complaint? Well, you have to file a confirmation proceeding in a court. FINRA is a party to that proceeding unless they waive their right to be a party under the FINRA rules. Generally, they do waive it, but you have to make an application to FINRA asking them to waive their right to participate in the court confirmation of that arbitration award. If they do, it’s generally a very easy process to get that customer complaint expunged.
On the other hand when a broker-dealer files a U-5 and puts a false and defamatory statement on your record, and it’s not a customer complaint, it’s usually on the Form U5, a different set of rules apply to expunge that black mark. It’s a little easier to expunge those statements if you can approve they are false and defamatory. You can even expunge defamatory statements in states like New York and California, as you may have heard me say in other videos, where those statements are “absolutely privileged.” You can’t sue your broker-dealer for defamation in those states but you can still get the false and defamatory claim expunged.
The process is you file a complaint against that broker-dealer and you only sue for expungement. If the arbitrators agree with you that the statement is false and defamatory, they can order expungement in their arbitration award. You don’t have to go through that second part process like you had to do with the customer complaints. You go directly to FINRA, you show them the arbitration award with the finding the statement was false and defamatory and FINRA takes it off your record.
That’s what you need to do. Very rarely have I met a broker who can do this on his/her own. You are going to need to hire a FINRA arbitration lawyer that’s knowledgeable of expungement proceedings, the policies, the procedures at FINRA, and more importantly, in the case of defamatory statements, how to prosecute a defamation claim. We’re here to help you if you need us.