As part of its mission to protect investors, the Financial Industry Regulatory Authority (FINRA) gathers and discloses certain information about registered financial advisors and brokerage firms registered with FINRA, including financial advisors and broker dealers. FINRA houses this information in various databases, including but not limited to its Central Registration Depository (CRD) and its publicly viewable registration information portal, BrokerCheck.[1]
What happens, however, when the information disclosed is inaccurate? FINRA rules provide for a process by which registrants may seek expungement (removal) of inaccurate or false information on their CRD record.[2] Under FINRA Rule 2080, registered firms or advisors may seek to expunge customer dispute information by initiating a FINRA arbitration and presenting evidence supporting their expungement request. If the requester obtains an arbitration award granting expungement, the firm or advisor must obtain judicial confirmation of the award. FINRA arbitrators may award expungement under Rule 2080(b)(1) where (A) the claim, allegation or information is factually impossible or clearly erroneous; (B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or (C) the claim, allegation or information is false. [3] Rule 2080(b)(2) also allows for expungement when arbitrators determine that (A) the expungement relief and accompanying findings on which it is based are meritorious; and (B) the expungement would have no material effect on investor protection, the integrity of the CRD system or regulatory requirements.[4]
Once a court of competent jurisdiction confirms an expungement award, FINRA removes the expunged information from the CRD system, and it no longer is available to the public through its BrokerCheck database.
Over the last few years, FINRA has made several changes to its expungement process. Recently, FINRA proposed substantive revisions for expungement requests involving customer complaints, including the following.
For arbitrations filed exclusively for the purpose of expungement:
If the expungement request involves a customer complaint, the request must be filed no more than three (3) years from the date the complaint was reported in FINRA’s CRD system (if the complaint did not evolve into a customer-initiated arbitration or civil litigation); and
If the customer complaint did evolve into a customer-initiated arbitration or civil litigation, then the request must be filed no more than two (2) years after the close of such arbitration or litigation.[5]
Such requests must name, as a Respondent in the arbitration, the broker-dealer firm with which the advisor was associated at the time of the events giving rise to the customer dispute.
FINRA will permit an authorized representative of state securities regulators to attend and participate as a non-party in prehearing conferences and the expungement hearing to the same extent as customers could attend and participate.
FINRA will require the request be decided by a three-person panel (as opposed to a one-person panel which historically was allowed in certain circumstances), and it will prohibit the parties from (1) agreeing to fewer than three arbitrators to consider the expungement request; (2) striking any of the selected arbitrators; (3) stipulating to an arbitrator’s removal; or (4) stipulating to the use of pre-selected arbitrators.[6]
For expungement requests considered during a customer arbitration:
FINRA will require the registered advisor named in a customer arbitration to request expungement during that customer arbitration or forfeit the opportunity to request expungement in any subsequent proceeding.
The new rule also will condition and limit the ability of a party to a customer arbitration to request expungement during the customer arbitration on behalf of a registered advisor who is the subject of a customer arbitration, but unnamed, so that the advisor cannot later claim they were not aware of the prior expungement made on their behalf.[7]
FINRA-registered firms and advisors should study the expungement rule changes proposed by FINRA, as these revisions will impact expungement requests substantially. Our firm regularly represents individuals and firms in employment matters in the areas of securities and financial services, including expungement claims. If you have a FINRA CRD expungement matter you’d like to discuss with us, give us a call.
Jonah A. Toleno is based in our San Diego, California office. She practices in securities and financial services law, including employment law. She acts as trial counsel and outside corporate counsel for numerous financial, business, and individual clients. She can be reached at (619) 696-9500 or [email protected] with questions.
[1] FINRA Discussion Paper – Expungement of Customer Dispute Information, April 2022
[2] FINRA Rule 2080 (formerly National Association of Securities Dealers (NASD) Rule 2130
FINRA proposed a change to its expungement rules in the Fall of 2020, seeking to alter certain aspects of the expungement process, including substantially shortening the time limit for a registered representative to seek expungement of customer-related disclosures and allowing expungement to be granted only by a three-person panel (previously a single arbitrator could order expungement).
Expungement, as an extraordinary remedy, should be recommended only in circumstances in accordance with FINRA rules to remove clearly inaccurate customer dispute information from the record of an individual broker that is associated with a broker-dealer firm. These records are part of the Central Registration Depository (CRD®) system, which is the source of the information provided to the public through BrokerCheck®—a free tool to provide investors with information regarding a broker’s employment history, regulatory actions, investment-related licensing information, arbitrations and complaints.
Earlier this year in May 2021, FINRA temporarily withdrew its proposed changes. This is a significant development, particularly affecting FINRA-registered advisors who may not have the means or ability to seek expungement within the proposed, shortened time frame. The current expungement rules continue to apply until further notice from FINRA, and/or the SEC, which approves all FINRA-proposed rule changes.
Even without the more restrictive proposed changes to the rules, obtaining expungement from FINRA generally is quite challenging. FINRA notes on its website that from 2015 to 2020, it entered approximately 35,000 customer disputes into its CRD (Central Registration Depository) system, and only about 1,500, or 4%, of these disputes were expunged.
Our firm is highly experienced in FINRA arbitration matters, including broker expungement and customer dispute issues. If you are a FINRA-registered representative interested in learning more about the expungement process, feel free to contact us for a consultation to discuss your options.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Attorney Jonah A. Toleno can be reached in the firm’s San Diego office at (619) 696-9500.
It was reported over the weekend that David Cicilline (D), the House Judiciary Committee’s Antitrust Panel’s Chairman, plans to propose at least ten (10) legislation pieces targeting Big Tech companies. Sources say that Representative Cicilline’s legislation bills will be aimed at social media platforms such as Facebook, as well as tech giants Apple, Amazon, and Google. The bill proposals will come on the heels of a 400-plus page report summarizing market power abuses by these companies.
Yahoo Finance, reporting on the story, states that the legislative bills are likely to target these Big Tech companies and the manner in which some of them, such as Facebook, “amplify user content.” It remains to be seen how the market power abuse report and the ensuing legislation will impact share prices of these companies, but the developments and the effects of the bills on the companies are sure to be interesting.
Our firm specializes in securities and financial services litigation. Our attorneys are trained to litigate and provide counsel in the areas of investment fraud, broker transitions and Broker Protocol issues, FINRA arbitrations, SEC investigations and inquiries, trade secret disputes, and other issues arising in the fields of securities and financial services. If you have questions about an investment you own or any other issues relating to securities, feel free to contact us for a consultation.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Attorney Jonah A. Toleno can be reached in the firm’s San Diego office at (619) 696-9500.
Earlier this year, Morgan Stanley announced plans to purchase E*Trade Financial Corp., with the deal scheduled to close by end of 2020. The acquisition would include E*Trade’s $360 billion in assets, $18.2 billion of which is comprised of custody business for Registered Investment Advisors (RIAs). Many wonder what Morgan Stanley, a global wirehouse firm with over 16,000 advisors who primarily engage in brokerage and commission-based business, plans to do with E*Trade’s RIA business. Unlike other, independent brokerages, Morgan Stanley does not currently permit its advisors to operate on RIA platforms. Some opine that acquiring E*Trade’s custody business could pose a direct competition with the deeply rooted culture of its brokerage business. According to an article published in Investment News earlier this week, a Fox Business report in May intimated that Morgan Stanley was “exploring the idea of opening its own independent RIA business.” But when Investment News contacted Morgan Stanley about the report, a spokesperson denied it.
As those in the securities and financial services industry are aware, the last decade has seen a huge exodus of advisors from traditional wirehouses to pursue independent, RIA, and hybrid business models. Wells Fargo recently began permitting its advisors to engage in RIA business. It will be interesting to see whether Morgan Stanley integrates E*Trade’s RIA custody assets into its model, with other wirehouse firms likely taking notes if it does.
Our firm specializes in counseling brokers, advisors, and firms on transition issues. If you have a broker transition situation you’d like to discuss with us, give us a call at (619) 696-9500 and look us up at https://www.shufirm.com/.
Partner Jonah A. Toleno is based in our San Diego, California office. She practices in securities and financial services law, including employment law. She acts as trial counsel and outside corporate counsel for numerous financial, business, and individual clients. She can be reached at (619) 696-9500 or [email protected] with questions.
Earlier this month, the United States Supreme Court ruled in Bostock v. Clayton County, Georgia that it is illegal for employers to fire employees solely for being gay or transgender. The Court’s ruling, a 6-3 decision, addresses three cases simultaneously: Bostock v. Clayton County, Georgia; Altitude Express, Inc., et al. v. Zarda et al., and R.G. & G.R. Harris Funeral Homes, Inc. v. Equal Employment Opportunity Commission et al., all of which involved an employer terminating “a long-time employee simply for being homosexual or transgender.” The opinion, authored by Justice Neil Gorsuch, grants federal protection to gay and transgender employees under Title VII of the Civil Rights Act.of 1964. The Court summarized its decision, in part:
An employer violates Title VII when it intentionally fires an individual employee based in part on sex. It makes no difference if other factors besides the plaintiff’s sex contributed to the decision or that the employer treated women as a group the same when compared to men as a group. A statutory violation occurs if an employer intentionally relies in part on an individual employee’s sex when deciding to discharge the employee. Because discrimination on the basis of homosexuality or transgender status requires an employer to intentionally treat individual employees differently because of their sex, an employer who intentionally penalizes an employee for being homosexual or transgender also violates Title VII. There is no escaping the role intent plays: Just as sex is necessarily a but-for cause when an employer discriminates against homosexual or transgender employees, an employer who discriminates on these grounds inescapably intends to rely on sex in its decisionmaking.
The decision is being hailed by many as a landmark decision, primarily since several states’ laws permitted employers to terminate employees on the basis of their gender identity and/or sexual preference, until the Court’s ruling. Employers throughout the United States now should take note of the Bostock case and ensure their policies and procedures, particularly those relating to termination, comport with the Supreme Court’s holdings. Our firm regularly represents individuals and firms in employment matters in the areas of securities and financial services, including discrimination and wrongful termination claims. If you have a situation you’d like to discuss with us, give us a call at (619) 696-9500 or look us up at https://www.shufirm.com/.
Partner Jonah A. Toleno is based in our San Diego, California office. She practices in securities and financial services law, including employment law. She acts as trial counsel and outside corporate counsel for numerous financial, business, and individual clients. She can be reached at (619) 696-9500 or [email protected] with questions.
In Part 1 of this blog series, we established that FINRA (the Financial Industry Regulatory Authority), formerly known as the National Association of Securities Dealers (NASD), is a self-regulated organization (“SRO”) that engages in multiple functions in the financial services and securities industry. Our firm represents entities and individuals in varying capacities before FINRA. Many of our clients understand FINRA’s functions based on their individual experience with the organization. But not all who encounter FINRA are aware of its role, functions, or purpose in the financial sector. This is the second of a series of posts explaining the various activities and functions in which FINRA regularly engages.
In Part 1, we explored FINRA’s mission, which it has stated is to “safeguard the investing public against fraud and bad practices.” [1]
FINRA employs principles to execute this mission through its “Five Steps to Protecting Market Integrity.” [2] Those five steps as articulated by FINRA on its website are to:
Deter misconduct by enforcing the rules;
Discipline those who break the rules;
Detect and prevent wrongdoing in the U.S. markets;
Educate and inform investors; and
Resolve securities disputes
FINRA, acting in its capacity as an SRO, engages in the above steps to carry out its stated mission. In our next blog post on this topic, we will explore Step 1, including what FINRA specifically does to deter misconduct and enforce its rules and who is affected by such FINRA action.
Our firm is primarily engaged in FINRA’s Step 5, above, helping resolve securities disputes by representing individuals and firms affected by FINRA’s oversight, including financial advisors, brokers, investment advisors, financial services firms and investment advisory firms, and defrauded investors seeking to recover investment funds. If you have an investment, employment, trade secret, or broker transition situation you’d like to discuss with our firm, give us a call at (619) 696-9500 and look us up at https://www.shufirm.com.
Partner Jonah A. Toleno is based in our San Diego, California office. She practices in securities and financial services law and acts as trial counsel and outside corporate counsel for numerous financial, business, and individual clients. She can be reached at (619) 696-9500 or [email protected] with questions.
FINRA (the Financial Industry Regulatory Authority), formerly known as the National Association of Securities Dealers (NASD), is a self-regulated organization (“SRO”) that engages in multiple functions in the financial services and securities industry. Our firm represents entities and individuals in varying capacities before FINRA. Many of our clients have an understanding of FINRA’s functions based on their individual experience with the organization. But not all who encounter FINRA are aware of its role, functions, or purpose. The following is the first of a series of posts explaining the various activities and functions in which FINRA regularly engages.
FINRA’s stated mission is to “safeguard the investing public against fraud and bad practices.” [1] It states on its website that it “works every day to ensure that
– Every investor receives the basic protections they deserve
– Anyone who sells a securities product has been tested, qualified and licensed
– Every securities product advertisement used is truthful, and not misleading
– Any securities product sold to an investor is suitable for that investor’s needs
– Investors receive complete disclosure about the investment product before purchase.”
FINRA also states it has a “dual mission of investor protection and market integrity.”[2]
Stay tuned for upcoming posts on how FINRA pursues its mission, what activities it conducts in the name of investor protection and market integrity, and the issues that can arise when these mission objectives must be balanced against the ability of FINRA-licensed financial advisors and registered representatives to make an earnest living advising investors. It gets interesting, to say the least!
Our firm focuses on representing individuals and firms affected by FINRA’s oversight, including financial advisors, brokers, investment advisors, financial services firms and investment advisory firms, and defrauded investors seeking to recover investment funds. If you have an investment, employment, trade secret, or broker transition situation you’d like to discuss with us, give us a call at (619) 696-9500 and look us up at https://www.shufirm.com/.
Partner Jonah A. Toleno is based in our San Diego, California office. She practices in securities and financial services law and acts as trial counsel and outside corporate counsel for numerous financial, business, and individual clients. She can be reached at (619) 696-9500 or [email protected] with questions.
Nine financial services firms have announced plans to start their own trading exchange called the “Members Exchange”. Among the founding banks and brokerages are UBS, Morgan Stanley, Bank of America Merrill Lynch, Charles Schwab, and Fidelity Investments. The planned launch comes after years of broker dissatisfaction with the high data feed and stock monitoring costs charged by current leading exchanges.
The Members Exchange firms hope to reduce client services fees and increase transparency as a result of the new exchange. Industry members predict that the Members Exchange will encourage competition among current, existing exchanges, which currently charge firms substantial fees for necessary services such as data feeds and market information distribution, potentially leading to reduced fees across all the exchanges.
No date for the launch of the Members Exchange has been announced. Participating firms anticipate seeking approval from the Securities and Exchange Commission (SEC) for the exchange early in 2019.
Partner Jonah A. Toleno is based in our San Diego, California office. She practices in securities and financial services law and acts as trial counsel and outside corporate counsel for numerous financial, business, and individual clients. She can be reached at (619) 696-9500 or [email protected] with questions.
Earlier this month, the American Bar Association (ABA) issued its first-ever report on research conducted jointly by the ABA Commission on Women in the Profession (the “Commission”), the Minority Corporate Counsel Association (“MCCA”), and the Center for WorkLife Law at the University of California, Hastings College of the Law. The Commission, MCCA, and UC Hastings collaborated to find out how “to understand further law firm and in-house lawyers’ experiences of bias in the workplace.” MCAA President and CEO Jean Lee and Commission Chair Michele Coleman, describe in a Forward to the report four main patterns of gender bias addressed by the research: “Prove-It-Again”, “Tightrope”, “Maternal Wall”, and “Tug of War”.
The ABA’s report identifies and defines these nomenclatures, summarizes patterns, research, and findings for each, and provides tools for firms and in-house departments to interrupt bias in the workplace. Under the “Prove-It-Again” phenomenon, data indicates that women, women of color, and men of color report a need to go “’above and beyond’ to get the same recognition and respect as their colleagues.”
“Tightrope” research showed women of all races reported “pressure to behave in feminine ways, including backlash for masculine behaviors and higher loads of non-career-enhancing ‘office housework’”. “Maternal Wall” findings reflected reports that women of all races felt they were treated worse after having children, being passed over for promotions and given lower-quality assignments. Over 40% of men of all races also reported they believed taking family leave would negatively impact their career.
The “Tug of War” nomenclature describes an environment where bias sometimes can fuel conflict between members of disadvantaged groups, a dynamic that has been reported among women and, in the ABA Report, among people of color.
The report goes on to document statistics on in-house versus law firm experiences and sexual harassment, and it concludes with suggestions for addressing and interrupting bias. Among the suggested bias-interrupting tools for firms and in-house departments are: using and analyzing metrics, assembling diverse hiring pools, and using structured interviews when hiring.
Bias is an innate component of human nature. While a report as comprehensive as the ABA’s can be overwhelming, and implementing its recommended tools for bias interruption may not yield results overnight, as its title indicates, awareness of implicit and explicit biases is the first step to change. Shustak Reynolds & Partners commends the ABA, the Commission, the MCAA, and all the research participants for helping the legal community identify these important issues. We represent financial professionals, firms, and investors from diverse backgrounds in a wide range of issues, including sexual harassment, discrimination, pay equity, fraud, breach of contract, and regulatory issues, for both claimants’ and defense. Please contact us at (619) 696-9500 or find us online at http://shufirm.com for a confidential initial consultation anytime.
Partner Jonah A. Toleno acts as outside corporate counsel and trial counsel for numerous business and individual clients. In the Spring of 2018, the San Diego County Bar Association presented Ms. Toleno with the Community Service Award for Commitment to Diversity.
FINRA, the Financial Industry Regulatory Authority (formerly NASD), has announced it is transforming its online CRD (Central Registration Depository) platform. Those in financial services are familiar with Web CRD as FINRA’s central licensing and registration system used by the U.S. securities industry and its regulators. “Web CRD contains the registration records of broker-dealer firms and their associated individuals including their qualifications, employment and disclosure histories; it also facilitates the processing of form filings, fingerprint submissions, qualification exams and continuing education sessions. Web CRD is a secure system that only firms and regulators that have been granted access by FINRA can use.” http://www.finra.org/industry/crd. The general public also can view CRD-generated reports for detailed information about financial advisors and broker-dealer firms, at https://brokercheck.finra.org/.
According to FINRA, its overhauled CRD system will provide registered securities firms new, more efficient processes including the following:
– Consolidated tasks and activities to streamline workflow
– Better manage bulk movement of individuals across firms and branches
– Better communication and coordination between Firms, Reps, and Regulators
– Step-by-step guidance that makes it easy to complete filings with fewer errors
FINRA aims to fully implement the CRD changes by 2021. FINRA President and CEO Robert Cook states, “The transformation will allow FINRA to develop systems that help firms effectively maintain compliance programs and reduce compliance costs while continuing to operate and enhance BrokerCheck as an essential tool for investors.” FINRA’s updated CRD disclosure review process is slated to take effect on July 9, 2018.
Our firm regularly represents firms and individuals in SEC, FINRA, securities, investment, and financial services matters, including litigation, arbitration, enforcement and investigation matters. If you or your company require counsel in these areas, contact us through our website or call us at (619) 696-9500.
Jonah Toleno is a partner in our San Diego office and has extensive experience representing individuals and firms before the SEC, FINRA, state courts and federal courts. Jonah provides outside advisory services and regulatory investigation representation to financial services firms and acts as trial counsel in a range of litigation and arbitration matters.
