RIA Compliance Blog
In a decision last month, the California Court of Appeals may have opened the door for brokers to bypass the Financial Industry Regulatory Authority’s (FINRA) rigid expungement rules in order to remove matters from their CRD records. Currently, brokers must abide by Rule 2080 in order to expunge their records. The FINRA rule allows for expungement only upon meeting one of three tests: (1) the claim is factually impossible, (2) the broker was not involved in the conduct or (3) the information is false. The rule states that a broker who seeks expungement “must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.”
In its recent decision, the California Court of Appeals held that a court may expunge a broker’s CRD record in the interest of fairness and equity, regardless of FINRA’s rule. Edwin Lickiss filed a petition in the court in April 2011 seeking expungement of 17 customer complaints and a regulatory action from his CRD record claiming that they were old and irrelevant and negatively affected his profession. The customer complaints against Mr. Lickiss had resulted in total payments of $831,000, and Mr. Lickiss was required to personally pay a $5,000 settlement. FINRA objected to Mr. Lickiss’s expungement request, stating that he was trying to “sanitize his record and prevent regulators, brokerage firms and investors from learning of this history for what amounts to ‘time served.'” The trial court dismissed the complaint, citing the requirements of Rule 2080. The court of appeals reversed the trial court’s decision, holding that it should have looked to equitable principles instead of FINRA rules.
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