FINRA Rule 12805, Expungement of Customer Dispute Information under Rule 2130, is the FINRA rule that sets forth the procedures that arbitrators must follow before recommending expungement of customer dispute information from a broker's Central Registration Depository (CRD®) record.
The rule is designed to ensure that expungement occurs only when the arbitrators find and document one of the narrow grounds specified in Rule 2130:
The claim, allegation, or information is factually impossible or clearly erroneous.
The claim, allegation, or information is based on intent to injure or defraud the customer.
The customer has provided a written statement that the claim, allegation, or information is inaccurate or that the customer does not intend to pursue the claim.
The claim, allegation, or information is the result of a regulatory investigation or proceeding and the broker has been found to have no wrongdoing.
The claim, allegation, or information is the result of a settlement agreement and the settlement agreement includes a provision for expungement.
FINRA Rule 12805 requires arbitrators to hold a recorded hearing session before recommending expungement. The hearing must be open to the public and the customer must be given notice of the hearing and the opportunity to participate. The arbitrators must also consider any evidence submitted by the customer or the broker.
After the hearing, the arbitrators must issue a written decision that explains their reasons for recommending or denying expungement. If the arbitrators recommend expungement, the decision must also include a finding that the customer is not a threat to investors and that expungement is in the public interest.
FINRA Rule 12805 is important because it helps to protect the privacy of brokers while also ensuring that investors have access to accurate information about the brokers they are considering investing with.
In addition to the above, FINRA Rule 12805 also specifies the following:
The party requesting expungement must bear the burden of proof.
The arbitrators must consider all relevant evidence, including the customer's dispute information, the broker's response, and any other evidence submitted by the parties.
The arbitrators must make their decision based on the preponderance of the evidence.
If the arbitrators recommend expungement, they must file a report with FINRA within 30 days of the decision.
FINRA Rule 12805 is a complex rule with many nuances. If you are considering requesting expungement of customer dispute information from your CRD® record, you should consult with an experienced securities lawyers such as Chad M. Ostrosky, Esq.