Why Doesn’t my Broker-Dealer Pursue an Expungement Award on my Behalf?

A lot of our clients feel that their broker-dealer should, on the broker’s behalf, pursue the expungement award when expungement is a probable success. There tend to be three main reasons why broker-dealers are not willing to accept the additional risk exposure.

1. Broker-Dealer (B/D) would be filing a claim against themselves on behalf of the broker. 
   The rules imposed by FINRA require that the rep seeking expungement name the B/D as the respondent in a claim filed with FINRA in request of an expungement (e.g., Stratton Oakmont vs. Stratton Oakmont re request for expungement award of Bob Broker). There are not many situations where filing an arbitration claim against oneself makes sense. This is definitely a situation where it would be highly suspect.
   
   
2. The PR implications of a Broker-Dealer pursuing expungement awards for their reps would be substantial. 
   Imagine the press coverage, “Stratton Oakmont invests a small fortune in erasing the records of all their brokers.” The upcoming DOL implications aside, one can imagine how it would be perceived by the public if a B/D filed a number of claims naming themselves as Respondent. The perception would be that the Broker-Dealer was outwardly exploiting regulatory remedies (for their own economic gain).
   
   
3. The mere cost of doing it themselves vs reps engaging their own counsel. 
   Pursuant to Rules 12900 (filing fee), 12901 (surcharge fee), and 12902 (hearing session fees), Broker-Dealers are required to pay $8,550 in total members fees for non-monetary claims filed by a member firm. In addition to the $8,550 paid by the B/D, if they were to file the claim on behalf of the broker, there would be an additional $2,250 in fees owed by the broker (pursuant to Rule 12900). In total, the B/D would spend a minimum of $10,800 in FINRA fees alone. Given that over 5.5% of brokers have one or more customer disputes, the costs to the Broker-Dealer would be significant.

 
FINRA sets up the B/D to be the “bad cop” while FINRA maintains a semblance of impartiality; the “good cop.” When the Broker-Dealer becomes aware of the customer complaint, the B/D is required (by FINRA) to inform FINRA. The dispute is then put on the broker’s profile. In essence, FINRA requires the B/D to punish their own broker.
 
AdvisorLaw has a dedicated team of attorneys and staff whom specialize in representing brokers marred by disclosures viable for expungement from the CRD system. Contact me today if you or a colleague has disclosures on BrokerCheck that may qualify for expungement.
 
Read our commentary in InvestmentNews here. 

​Doc Kennedy

President, Managing Attorney
3400 Industrial Lane, Unit 10A
Broomfield, CO 80020

Main Ph: (303) 952-4025
Fax: (720) 452-0613
Email: doc@advisorlawyer.com