FINRA Proposes Expungement Proceeding for Alleged Sales Practice Violations
FINRA has proposed new expungement procedures for persons that are not named in a customer sales practice arbitration but would be subject to U4 or U5 reporting because the unnamed person was involved in the alleged sales practice violation. Under current rules, a person not named as a party must rely on his/her current employer to seek expungement. The proposed proceeding would require FINRA to notify unnamed persons who could then file a notice of intent to file expungement proceedings. The person would then have 60 days after conclusion of the arbitration proceedings to file. One of the arbitrators in the main action would decide the proceeding. The expungement proceeding could not seek other remedies such as damages for defamation.
OUR TAKE: FINRA needs to take some action to give unnamed parties, who have no control or defense, to seek expungement. Otherwise, registered representatives bear the burden of an unwarranted scarlet letter. Also, the U4/U5 may be misleading.