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Finra Amendment Makes U4 and U5 Expungements More Difficult

By Erwin J. Shustak, Esq. of Shustak Reynolds & Partners, P.C. posted on Tuesday, September 22, 2015.

FINRA’s Board of Governors voted to implement several key regulatory changes for broker-dealers including one that will make it harder for brokers to expunge, or erase, customer complaints from their CRD records.  The changes are part of FINRA’s continuing efforts to minimize the ability of brokers to redact negative reports and customer complaints from  their CRD records following negative reports about customer complaints or other issues.  The CRD, or Central Registration Depository, is a FINRA maintained data bank which lists, among other information, broker information and regulatory and customer complaints about those brokers.  Through Broker-Check, available to the public through the FINRA website, www.finra.org, the investing public can have simple, free access to those reports.

In its initiative, FINRA reminds its arbitrators that expungement of customer complaints and other negative reports on brokers “is an extraordinary remedy that should be recommended only under appropriate circumstances” and that “customer dispute information should be expunged only when it has no meaningful investor protection or regulatory value”.

This latest movement by FINRA follows on the 2013 highly controversial report issued by the Public Investor Bar Association (PIABA), a group of plaintiffs’ lawyers, which showed that expungement requests were granted in as many as 90% of cases resolved by settlement or stipulated awards before FINRA arbitration panels.

As part of that effort to make it more difficult for brokers to expunge customer complaints from their CRD record, FINRA last year proposed, and the SEC approved, an amendment that prevented member broker-dealer firms from including an agreement that the settling claimant would not oppose expungement of the broker’s records as part of any settlement.

While FINRA continues to tighten the rules allowing expungements, there still are avenues for a broker disputing an untrue or unfair report to challenge and expunge the customer complaint from his or her CRD record.

Shustak Reynolds & Partners, P.C.  focuses its practice on the securities industry and matters affecting broker-dealers and registered representatives.  The Firm has extensive experience in the area of broker expungements.  For more information, contact Erwin J. Shustak, managing partner, at [email protected], or call 800.496.5900 for a free consultation.

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