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SEC Approves FINRA Rule to Prohibit Conditioning Settlements on Expungement

Posted on Sunday, July 27th, 2014 at 10:12 pm    

The Securities and Exchange Commission recently approved the implementation of FINRa Rule 2081, which prohibits brokers from making settlements of customer disputes contingent on the claimant’s agreement not to oppose expungement of the dispute from the brokers’ public record. Once information is expunged from the CRD system, it is permanently deleted and becomes unavailable to the investing public, regulators or prospective broker-dealer employers.

“This rule will prohibit firms and reps from conditioning settlements on a customer’s agreement not to oppose expungement, thus protecting the integrity of the CRD system and disclosure of material information to investors,” said Richard Ketchum, FINRA Chairman and Chief Executive Officer, according to FINRA’s news release.

The CRD system, which is operated by FINRA, is an online registration and licensing system for the securities industry. The CRD system contains information regarding members and registered representatives, such as personal, registration and employment history, as well as disclosure information including criminal matters, regulatory and disciplinary actions, civil judicial actions, and information relating to customer complaints and disputes. FINRA makes this information publicly available through BrokerCheck. Customer complaints against a broker typically are reported on the broker’s CRD report, and can be removed only where a FINRA Arbitration Panel recommends expungement, which must then be confirmed by court order.

The new rule comes in response to complaints from attorneys representing investors, as well as some members of Congress, that too many brokers were getting disciplinary actions wiped from their records by arbitrators. The new rule is intended to ensure that expungement is the exception, not the rule.

Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 888-840-1571 or complete our “contact form.”