Nov. 21, 2022
Sir/Ma’am – I would like to submit the following comments: My analysis below goes point by point. Before I get into that analysis, I would like to point out one issue: the rule proposed rule changes are entirely on the expungement process and not on the disclosure process. This is the equivalent to treating the symptom and not the disease. Thus, as long as there is no minimum requirement for what is counted as a disclosure, there will continue to be a high rate of success for expungements. State bar associations evaluate complaints first to determine if there is any merit. Then after that evaluation, if it is determined that there is some merit, the attorney is involved. The same should be done so here. FINRA should evaluate the complaint first to determine a basic level of legitimacy. Otherwise, the meritless and frivolous complaints will continue to be filed and will continue to be expunged at a high rate of success. Below is my specific analysis: Proposed: The Panel would consist solely of public arbitrators: Analysis: This removes from panels those who have the most knowledge and experience of the securities industry. The current set-up includes 1 public, 1 private, and 1 chairperson who may be either public or private. This helps create a diverse knowledge-base and helps the panel make better, more informed decisions. i. Recommendation: This should be removed as a requirement. Proposed: Expungement panels would receive “enhanced expungement training.” Analysis: The training should be made public and included as part of this proposal. An obvious concern is that this supposed training is just coercive language to convince expungement panels to stop granting expungements. i. Recommendation: This should either not be a requirement or the enhanced training materials should be neutral/informative instead of persuasive and advocating. Proposed: Parties would be unable to strike arbitrators. Analysis: Different arbitrators approach issues differently. There is a benefit to FINRA to have a larger pool of potential panelists who can cover this topic and then let the parties winnow the pool. i. Recommendation: This should be removed as a limitation. Proposed: Notification of state regulatory agencies. Analysis: I do not have an issue with this as long as the state agency personnel are there only to attend and not to participate. i. Recommendation: Limit the state agency representative to an observer role. Proposed: Impose time limits on the filing of straight-in requests Analysis: Many financial advisors are still unaware of the expungement process. This would preclude them from ever pursuing expungement. i. Recommendation: FINRA should grandfather in those who already have disclosures. Conversely, if they are not grandfathered in, FINRA should send a notice to all financial advisors giving them a time period in which they must pursue an expungement claim or their opportunity will expire. Proposed: Codify best practices Analysis: Best practices based upon whose perspective? The concern here is that the “best practices” are actually just practices that limit expungement. i. Recommendation: This should either not be a requirement or the best practices should be neutral/informative instead of persuasive and advocating. Proposed: Require unanimous agreement on the panel Analysis: This is a requirement that does not value the opinions of all arbitrators. If this becomes effective, it would enable one panelist to hold hostage the rest of the panel. Irrespective of reasoning, if one panel member decides against the claim, then the entire claim is denied, despite 2 of 3 desiring to grant it. i. Recommendation: This should be removed as a requirement. Proposed: “First, it would amend proposed Rules 12805(c)(3)(A) and 13805(c)(3)(A) to state that all customers whose customer arbitrations, civil litigations or customer complaints are a subject of the expungement request are entitled to attend and participate in all aspects of the prehearing conferences and the expungement hearing.” Analysis: This can provide value but I think that some of the logistics need to be addressed. The customer should not be able to request discovery and notice to the customer should only be once (for the IPHC) and not also again for the hearing. i. Recommendation: Limit discovery and notice to the customer. Proposed: “Second, it would modify proposed Rules 12805(c)(8)(C) and 13805(c)(9)(C) to state that a panel shall not give any evidentiary weight to a decision by a customer or an authorized representative not to attend or participate in an expungement hearing when making a determination of whether expungement is appropriate.” Analysis: Panels already do this. i. Recommendation: No issue with this. Proposed: “Finally, Amendment No. 1 would modify the proposed rule change to provide that an associated person shall not file a claim requesting expungement of customer dispute information from the CRD system if the customer dispute information is associated with a customer arbitration or civil litigation in which a panel or court of competent jurisdiction previously found the associated person liable.” Analysis: Agreed. i. Recommendation: No issue with this. Respectfully, Tosh Grebenik Judex Law, LLC, Founder