Arbitration, Broker, Central Registration Depository, CRD, Expungement, FINRA, FINRA Hurting Public, FINRA Rule 2081, Investing Public, Investor Loss, SEC, Settlement, Stockbroker
Negotiating a settlement of any dispute is difficult. Parties often have an emotional attachment to the claim, and when the claim involves the loss of money, emotions run that much higher. This money could have been targeted for retirement, a child’s college education, or simply an account meant to grow in value over time. An arbitration between an investor on the one hand who lost money and the broker on the other hand who was handling the account, is resolved before the Financial Industry Regulatory Authority (“FINRA”).
Because of the very personal nature of the claim, in many cases a mediator is brought in to work with the parties to try to reach a settlement. It is not unheard of during a mediation the parties will not even meet to say hello at the day and place of the mediation.
You have undoubtedly heard the phrase “thinking outside the box”, something which can result in a good settlement in the course of a mediation. One important tool in settlement discussions is to give away something that does not cost anything, but get something of value in return. A good settlement is often one that both sides are unhappy with; and to get to that point the attorneys and the mediator must be able to use all tools necessary to reach a settlement agreeable to all.
In a FINRA setting, when a broker is named in an arbitration, the proceeding is on the broker’s permanent record maintained on FINRA’s central registration depository (“CRD”). This is a record that is generally available to the public. The arbitration can only be removed from the CRD if there is an award of expungement from a FINRA arbitration panel, and that award is subsequently confirmed by a court.
Parties to an arbitration will engage in settlement discussions prior to discovery, during discovery and often times on the day of an arbitration hearing. For the investor involved in the settlement process, the goal is simple: get back as much of the money that was lost as possible. A tool referred to above for the investor, giving something that is of no value to the broker to get more settlement money, was the expungement tool. Said differently, in exchange for giving the investor money for the settlement, the broker would secure an agreement from the settling investor that he or she would not contest the broker’s expungement request. Keep in mind, this expungement request requires an independent hearing before a panel of FINRA arbitrators. Simply including language in a settlement agreement was no guarantee the expungement would be granted.
The SEC recently approved FINRA Rule 2081, a rule that summarily removes this critical tool utilized by both sides when settling customer complaints. The rule reads “No member or associated person shall condition or seek to condition settlement of a dispute with a customer on, or to otherwise compensate the customer for, the customer’s agreement to consent to, or not to oppose, the member’s or associated person’s request to expunge such customer dispute information from the CRD system.”
In a word, FINRA Rule 2081 is foolhardy. To answer the question raised in the title of this article, this rule not only works against the investing public, but hurts investors trying to settle a claim. The expungement tool was used in the past to put together a good settlement for an investor, trading off the agreement not to oppose an expungement for a higher dollar settlement, or perhaps a settlement payment in a quicker time period. It was a good trade-off for all the parties involved, and now it has been removed, making it that much more difficult for an investor to procure a better settlement.
If you have questions relating to expungement or investment issues, please contact The Law Offices of Barry M. Bordetsky by calling Barry M. Bordetsky at (800) 998-7705 or emailing at firstname.lastname@example.org.