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FINRA Expungement Update - Expungement Denied in Recent Case

By Erwin J. Shustak, Esq.  of Shustak Reynolds & Partners, P.C. posted on Monday, January 18, 2016.

A recent FINRA arbitration Award highlights how the new FINRA expungement rules cannot be circumvented and how expungement requests- even when agreed to by all parties- will not be granted.

In Gariulo v. Boenning& Scattergood, Inc., FINRA Case Number 14-03582, the Claimant requested compensatory damages of $500,000.00, plus punitive damages and attorney’s fees and asserted claims of churning, unauthorized trading; failure to follow instructions and omission of material facts.  The claims against the broker and the brokerage firm related to the purchase and sale of certain securities.

The brokerage firm settled the claims, with no contribution from the broker, and the broker sought expungement in the arbitration.  Neither the firm, nor the customer, objected to the expungement request.  The Panel, however, rejected the request and refused to order the broker’s CRD records be expunged of the claim.

The Panel, in its decision, found that “criteria for expungement under FINRA Rule 2080 are satisfied here, namely that the claims against [the broker] are false and clearly erroneous, the Panel is nonetheless constrained to deny the application because the parties’ Settlement Agreement violates FINRA Rule 2081”.  Rule 2081 specifically prohibits members firms and brokers from conditioning settlement of a customer complaint on the customer’s agreement to consent to expungement.  In the Settlement Agreement in this case, explicitly provided that all parties agreed to expungement.

By not following the FINRA rules, and improperly drafting the Settlement Agreement, the broker and his attorneys snatched defeat from the jaws of victory.  Knowing the ins, and outs, of the expungement process is paramount when seeking expungement.

Shustak Reynolds & Partners, P.C. has extensive experience in the area of securities and financial services law and routinely counsels investors, brokers, broker-dealers and registered investment advisors.  For more information contact Erwin J. Shustak, Esq, Managing Partner, at 619.696.9500 or via email at [email protected] or visit our web site at www.shufirm.com

 

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