Expungement attorney accuses FINRA staff of trying to influence arbitrators
It is not uncommon for brokers to petition the Financial Industry Regulatory Authority (FINRA) to expunge information involving customer disputes (Rule 2080). FINRA addresses claims regarding:
According to FINRA, arbitrated decisions are based on three standards in Rule 2080:
Why are we writing about expungement?
Because InvestmentNews Reporter Mark Schoeff, Jr. recently wrote an article about alleged interference by FINRA staff in the arbitration process. According to Schoeff’s article, the attorney represents brokers trying to clear customer disputes from their records via arbitration. The attorney asserts that FINRA staff monitoring arbitration hearings have tried to influence the outcome against expungement.
According to Dochtor Kennedy, president and founder of AdvisorLaw, FINRA case administrators often instruct arbitrators — sometimes in private conversations — about whether and how they can make a ruling. He argues that the arbitrators, not the FINRA team, should be asking for help. FINRA should not be inserting itself into a case – even to advise an arbitrator – as, he asserts, that guidance can be wrong.
As an example, he pointed to a recent expungement proceeding — John Daniel Quinn v. Chase Investment Services Corp. — in which, Kennedy says a FINRA case administrator erroneously told arbitrators they could not change the reason for Mr. Quinn’s separation from the firm from “discharged” to “voluntary.” Another lawyer for Mr. Quinn, Michelle M. Atlas, concurred, writing to the FINRA administrator that changing the reason for Quinn’s departure “is precisely the mechanism by which you are able to grant full expungement of this disclosure.”
Requiring a FINRA settlement agreement review unfair?
Schoeff wrote about another case, Jeff Malcolm Davis v. Merrill Lynch, in which the FINRA case administrator refused to permit the arbitrator to issue an expungement unless she received a copy of the settlement agreement between the broker and the investors. FINRA rules do require a review of the settlement agreement when considering expungement requests. However, Kennedy, who was representing Davis, called that requirement as unfair. In the case of Davis, he said, the demand could not be met as no settlement had been formalized and moreover, his client was not a party to the settlement agreement and never received a copy.
Arbitrators in the two cases ultimately granted expungement to Mr. Kennedy’s clients. Nonetheless, he says he has seen a similar pattern in other cases and this kind of interference tarnishes FINRA staff integrity. This “neutral” forum must be neutral.
FINRA spokesperson Michelle Ong responded in a statement, “The case administrator’s role is to advise arbitrators as to procedural matters and provide guidance on FINRA’s arbitration rules and procedures. The arbitrators are the sole decision-makers.”
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