The Financial Industry Regulatory Authority (FINRA) is a self-regulatory agency that oversees all activity within the securities industry. One common area of regulatory scrutiny is customer complaints. Customers of brokers and broker-dealers can file written complaints related to the management of their investments. A written customer complaint (and in some cases oral complaints) becomes part of the public record and is published through FINRA’s Central Registration Depository System (CRD). A customer complaint will appear on a broker’s and/or broker-dealer’s BrokerCheck report, which are publicly available on BrokerCheck.com. A public complaint about a broker can be detrimental extremely detrimental to their career and reputation. What can you get expunged under rule 2080?
FINRA Rule 2080 (“Rule 2080”) gives brokers the opportunity to remove these complaints from their record, or in legal terms, the complaint can be expunged (provided certain criteria are met). Rule 2080 only to the expungement of a customer dispute, and it does not pertain to intra-industry disputes, between a broker and their member firm.
Some of the most common instances in which a broker may receive a complaint on their record include:
- Breach of fiduciary duty – broker prioritizes their own financial gain over the customer’s.
- Unsuitability – recommending that an investor invests in a stock that goes beyond their risk tolerance.
- Negligence – failing to comply with FINRA rules and regulations.
Other cases include matters regarding:
- Breach of contract – violating the legal obligations structured within the agreement between the customer and broker.
- Churning – encouraging a customer to trade unnecessarily or too frequently in order to make more money.
- Failure to disclose risk – failing to tell a customer about the risks of certain stocks.
- Failure to supervise – firm fails to manage its staff in a way that allows for misconduct.
- High-pressure sales – utilizing aggressive sales tactics or pressuring a customer to make a transaction.
- Misrepresentation – failing to be transparent about an investment’s risks.
- Unauthorized trading – failure to receive consent prior to trading.
Taking for example a claim of unsuitability alleged by a customer. Say someone engages a broker to help invest on their behalf, and they state that they only want to invest in low-risk stocks. The broker, instead, places money into what may be considered a more ‘high-risk’ stock, and as a result, the customer loses money. This situation could be grounds for filing a customer complaint against a broker. However, the allegations of a customer complaint may not be true, like in this instance, if the customer simply lost money, but the broker abided by their investment objectives. A false or erroneous complaint is ripe for expungement.
There are three grounds to obtain expungement under Rule 2080:
- If the complaint is erroneous or factually impossible
- The registered person was not involved in the violation
- The complaint is false
While this may seem straightforward, the process to receive an expungement is complicated, so most brokers will and should hire experienced legal counsel to guide them. The regulatory and securities litigation attorneys at Warren Law Group are well versed in handling expungements. Expungements are typically handled through FINRA arbitration; a less expensive and less formal alternative to traditional court.
The Process: Expunged Under Rule 2080
The expungement process begins with an attorney preparing a statement of claim which outlines the broker’s activity leading up to the complaint and why the complaint is false. The customer will receive notice that a broker is attempting to expunge the complaint. Next, an arbitration panel is selected and a schedule for the case is determined. Then, the discovery process begins when a request is made for all documents, files, emails, messages, etc. in connection with the alleged complaint. Lastly, a hearing takes place where the broker will attempt to demonstrate that the claim is false. The customer can participate at the hearing. Shortly thereafter, typically within 30 days of the hearing, a written decision on expungement will be made by the arbitrators.
If you are a broker and have received a complaint on your record, it is critical that you seek an experienced FINRA expungement attorney to ensure your record is successfully cleared. Contact the securities litigation attorneys at Warren Law Group at (866) 954-7687 or email firstname.lastname@example.org to schedule your complimentary consultation.