Investor Advocacy Clinic Comments on FINRA Proposed Rule Change 2014-020

By Nataliya Obikhod (Nemtseva), Spring 2014 Student Intern

The GSU Investor Advocacy Clinic is committed to protecting the interests of individual investors. Therefore, in addition to providing legal services and participating in investor education and outreach, the clinic is also actively involved in the public comment process relating to rule changes proposed by FINRA.

The Proposal: SR-FINRA-2014-020

FINRA has recently proposed SR-FINRA-2014-020, which would prohibit FINRA members from conditioning settlements of customer disputes or compensating aggrieved investors in such disputes for agreeing to expunge or refrain from opposing an expungement of the dispute from the public record. Generally, when customer disputes against brokers or brokerage firms arise, this information is recorded on the Central Registration Depository (CRD) and made available to investors through FINRA’s BrokerCheck. Although records of customer disputes are only eligible for expungement in extraordinary circumstances, such as in cases when there has been a mistake as to the broker’s identity, a study conducted by PIABA revealed that expungements were often granted in circumstances not intended by the original rule. Through its proposed rule change, FINRA seeks to address this issue by preventing expungements from being granted as a result of settlement agreements reached between aggrieved investors and their brokers in customer disputes.

The Clinic’s Comment

file not foundOn May 1, 2014, the clinic submitted a comment letter, expressing its support for adopting this rule change. Although agreeing to expungements may seem to an aggrieved investor like a small price to pay to settle a dispute, expunging the record of such dispute is harmful to other investors, who rely on the information in the CRD when selecting brokers. SR-FINRA-2014-020 is a great step toward ensuring that expungements are granted in the limited circumstances for which they were intended and investors have access to important information about brokers with whom they consider working. To ensure that this rule change achieves the intended purpose, the clinic recommended that FINRA monitor the number of expungements and circumstances in which they are granted after the rule is adopted and that FINRA revisit the issue if necessary.

For more information on expungements under FINRA Rules, see our earlier blog posts dedicated to this topic.

 

The primary student author of the comment letter, Timothy Guilmette, was assisted by student interns Nataliya Obikhod (Nemtseva) and Thomas Abrahamson.