Where does an advisor go to get his reputation back? That is the heart of a complaint of a former broker suing FINRA to expunge damaging allegations from his CRD that have kept the former wirehouse employee from working in the brokerage industry for two years.
The broker maintains that a vindictive wirehouse employer, abusing the ability to put complaints on his record, included allegations from clients of a former partner, whom this broker never advised nor even met. A FINRA arbitration panel last year agreed with the broker, who was disillusioned to later find out that FINRA refused to confirm the panel’s finding.
In what is perhaps a sign of the extreme sensitivity of expungement cases, the broker, who contacted AdvisorOne and provided extensive documentation of his case including his and FINRA’s court filings, apparently got cold feet and abruptly ceased cooperation on this story. His lawyer also did not return a call.
But the case is illustrative of misunderstandings that brokers often have about FINRA and the Central Registration Depository (CRD) system. According to Steven Insel, a Los Angeles securities attorney with 30 years of experience in these types of cases, an arbitration award alone gives no right to expungement.
“You always end up having to go court to have it confirmed” except in rare cases where FINRA has waived the requirement, such as instances when allegations are factually impossible.
That is because FINRA is generally opposed to expungement on public policy grounds. Consequently, brokers may find arbitration awards they won at great effort and expense to be Pyrrhic victories.
For brokers seeking to dispute information on their CRD without the expense and difficulty of going to court, FINRA spells out its strict guidelines on its website, saying that “to be eligible for investigation, the dispute must pertain only to factual information, and not to information that is subjective in nature or a matter of interpretation.”
But brokers and securities attorneys say FINRA’s process is too rigid. Says Patrick Burns, a securities lawyer in Beverly Hills, Calif., “Brokers have complained for years about the lack of accountability of FINRA arbitration panels, and the great deal of difficulty in getting expungements processed. The expungement process needs to be fixed. “