The Expungement of Customer Complaint CRD Information Following the Settlement of a FINRA Arbitration

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Fordham Journal of Corporate & Financial Law, Vol: 19, Issue: 1, Page: 57

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Lipner, Seth E.
FLASH: The Fordham Law Archive of Scholarship and History
FINRA; Arbitration; Alternative Dispute Resolution; Securities; Regulation; Investing
article description
The Financial Industry Regulatory Association (“FINRA”) maintains a database of customer complaints regarding individuals licensed by FINRA as registered representatives. Both securities regulators and the investing public can access and use the data to find out about past customer complaints of the registered representatives. However, records of customer complaints can be expunged from the database through an arbitration process that FINRA created. This Article traces the history of that arbitration process and focuses on how it is employed in cases where the investor was paid money to settle a claim. The Article studies FINRA arbitrations in such cases and reveals that customer complaints regarding claims that later settled are being expunged at the rate of 93.7%, often in perfunctory ex parte proceedings where the complainant has agreed to not oppose the application as part of the settlement. This Article concludes with a proposal for necessary changes to the expungement process in order for the FINRA database to maintain its integrity.