FINRA proposed 'In re' expungement rules and accompanying forms to provide unnamed persons with a remedy to seek redress concerning allegations that could otherwise impact their livelihoods.  At the same time, the new rules maintain the protections of FINRA’s expungement rules to ensure the integrity of the CRD records. On Monday, 4/9, C-I provided an overview of the newly proposed expungement procedures that can be viewed in this linked RULE News blog.  On Tuesday, 4/10, C-I begins to provide detailed analysis.  A link to the FINRA pronouncements and filings are provided at the bottom of this posting. In 2009, the SEC approved amendments to Forms U4 and U5 ... to, among other things, require the reporting of allegations of sales practice violations made against unnamed persons.  The amendments added questions to elicit whether the applicant or registered person, though not named as a respondent or defendant in a customer-initiated arbitration, was either mentioned in or could be reasonably identified from the body of the arbitration claim as a registered person who was involved in one or more of the alleged sales practice violations. Currently, under the Customer Code and Industry Code, an unnamed person may seek to expunge "subject of" allegations by:

• asking their current or former firm that is a party to the arbitration to request expungement on their behalf;
• seeking to intervene in the arbitration filed by the customer; or
• initiating a new arbitration case in which the unnamed person requests expungement relief and names the customer or firm as the respondent.

FINRA believes that the current options do not always adequately address a number of issues that can arise in connection with expungement requests.  FINRA also believes that a customer’s arbitration case should not be disrupted or delayed to address an issue that may have no bearing on the outcome of the customer’s relief requests.  Moreover, it may be impractical for the unnamed person to become a party in the customer’s arbitration case, as it could expose the person to liability.  Finally, if the unnamed person files a new arbitration case to expunge these allegations, FINRA believes that neither the firm nor customer should be required to incur the additional expense of participating as a respondent in a new case.

For these reasons, FINRA is proposing new (or revised) FINRA Rules 12100(z), 12806, 13100(cc), 13806 and 13807, and new Notice of Intent to File and In re Submission Agreement forms to address expungement requests.

Under the proposed rules, FINRA would notify an unnamed person in writing when a firm reports to the CRD system that an unnamed person was the subject of an  investment-related customer-initiated arbitration proceeding alleging sales practice violations.  An unnamed person would file a Notice of Intent to File to alert FINRA that the person is considering filing a claim for expungement relief.  At the conclusion of the underlying customer-initiated arbitration case, FINRA would notify the unnamed person who filed the Notice of Intent to File that it has closed the underlying case.  If an unnamed person determines to seek expungement relief, the person would then file a statement of claim and an In re Submission Agreement, which would allow FINRA to arbitrate these types of cases. blog in progress ............. For further details, go to:   [FINRA RegNote 12-18, April 2012].