Form U-4 and Form U-5 were designed to provide important information to regulators, including pending claims and investigations. The Forms were not created to provide defamatory information regarding financial professionals to the world at large through the Internet.
But that is exactly what happened when BrokerCheck was created, and FINRA expanded the reporting. Now, the allegations contained in customer complaints and regulatory investigations are published by FINRA, regardless of the fact that none of the allegations were made under oath, no proof has been offered to support those allegations, and no trial or hearing has been held.
The damage caused to financial professionals by this process is uncountable, and is made worse by the fact that even after the broker successfully defends himself, the allegations remain on his record.
While it should not be necessary, the expungement process was designed to address the process, but it is coming under fire. We discuss the process, and its history in Expungement of Customer Complaints.
FINRA is proposing to again burden the process where financial professionals can remove unfounded complaints from their records. The change involves the filing fee when an expungement request is filed in a separate case. As the rule currently stands, the filing fee for arbitrations is based on the amount claimed. When we file a stand alone expungement arbitration, the dollar amount of damages is $1.00, since we are not seeking money, and the total FINRA fees are $150.00. The firm, which must be named as the Respondent is charged $150.00.
Under the new proposal, FINRA would assess a minimum filing fee of $1,575 against individuals for separate expungement claims. Minimum pre-hearing and hearing fees assessed against the individual would be $1,125, for total fees of $3,825 in a typical expungement-only proceeding. FINRA would also assess member firms a minimum $3,750 process fee and $1,900 member surcharge, for a total cost to member firms of $5,650. The proposed rule filing is available at the FINRA website.
FINRA claims that the costs of processing the expungement claim is far greater than the $300.00 it is now charging, which is undoubtedly true, but the costs are caused by FINRA’s cumbersome expungement rules, not anything caused by the financial professional or the broker dealer. Rather than deal with those issues, which are created by FINRA, it decided to take in $9,475 to process and hear a claim, which is typically is not opposed by the customer or the firm, and which hearing takes less than 3 hours.
The SEC approved the rule change in June 2020. Originally FINRA was discussing requiring a three person arbitration panel and a unanimous decisioni, but FINRA noted that while it believes that ‘‘most expungement
requests, particularly straight-in requests, should be decided by a three person panel,’’ it has determined not to revise this Proposal to require a three person panel to decide expungement requests, or to require the unanimous consent of a three-person panel to decide expungement requests.
The new rule is scheduled to take effect on September 14, 2020. We expect to see more hurdles in the near future, for three person panels and unanimous decisions.
If you have a claim for expungement, you should consider filing it now, and saving $3,700 in filing fees. Call our office at 212-509-6544 for a complimentary analysis of your expungement claim.
Mark J. Astarita, Esq. is a securities lawyer who represents investors, financial professionals and firms in litigation, arbitration and regulatory matters across the country. He is a partner in the national securities law firm of Sallah Astarita & Cox, LLC and can be reached by email at email@example.com or by phone at 212-509-6544.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.