DEFENDING YOUR PROFESSIONAL INTEGRITY
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As an attorney and a proud American, I am a firm believer in the principles upon which our country was founded. Perhaps the most important founding principle, is the due process of law. Or to a finer point, the presumption of innocence. However, there are some adjudicatory proceedings which seem to circumvent this very important principle; a FINRA proceeding is one of them. When it comes to FINRA proceedings, the regulatory authority throws this principle out of the window entirely.
In my regular course of business I speak with reps who have customer complaints disclosed on their BrokerCheck® profile. Often times these items are designated as “Customer Dispute – Denied” or “Customer Dispute – Closed No Action”. In many instances, this means that the allegation or “dispute” claim was frivolous or lacking in merit. Typically, the broker-dealer will conduct an investigation into the specific allegations, to determine the amount of exposure to the firm, and if the advisor had any wrongdoing in the matter. In denied customer disputes, the investigation did not result in a finding of wrongdoing by the registered rep so the matter is closed.
So why do these allegations, after being proven to be without merit, appear on FINRA’s BrokerCheck®? FINRA will answer that question by claiming it is in the best interest of the investing public. An unsophisticated investor certainly needs protection and assistance in navigating the financial markets, but at what cost? It seems to me, and from the perspective of many of my clients, that they are guilty until proven innocent; and remain guilty (after being found innocent), as this occurrence follows the rep for their entire career.
Like my clients, I think it is an insult to justice that even AFTER a registered rep is found to have done nothing wrong, customer disputes still appear on their BrokerCheck® profile. The existence of these disclosures continue tarnishing my clients’ reputations, damaging their ability to obtain new clients, and requiring them to have the same conversation over and over again with potential client who have reviewed their BrokerCheck® profile. In addition, I have even seen clients turned down for practice acquisition or working capital loans solely because of customer disputes.
On top of that, if a rep ends up in a FINRA investigation for any matter, their entire CRD record is fair game in FINRA’s eyes. Anything contained in the record that is derogatory is used against them when it is time to hand down sanctions in the form of fines, suspensions, or even a statutory disqualification. This also holds true if an investigation leads to an “On The Record” interview, often abbreviated as OTR.
A little known fact about customer disputes is that they are expungable. The entire basis of the claim for expunction must be substantiated by supporting documents, whether it is an internal investigation that is done by the firm, a signed RTQ (risk tolerance questionnaire) that aligns with the investment product in question, or some other form of documentation that can show no wrongdoing on behalf of the advisor.
Upon award of the expunction, a court of competent jurisdiction must sign off on the expunction in order to have the matter removed from the CRD system specific to the registered rep.
With the June 6, 2016 date quickly approaching, the new amendment to Rule 2210 is set to take effect swiftly. More detail can be found in my previous article. It is expected to drive substantial traffic to the BrokerCheck® portal; further increasing the ramifications of having baseless customer disputes on your U4.
If you believe you have been the subject of a frivolous dispute and would like to know your options pertaining to an expunction of the issue from your CRD. Please give us a call for a free no obligation consultation.
President, Managing Attorney
3400 Industrial Lane Unit 10A
Broomfield, CO 80020
Main Ph: (303) 952-4025
Fax: (720) 452-0613
This blog is my ongoing effort to inform and educate FINRA licensed professionals about the evolving regulatory ecosystem in which we operate.