Thursday, February 20, 2020
FINRA Expungement Fee Change
FINRA has begun to move to address some of the concerns about abuse of its expungement process, which allows stockbrokers to wipe customer complaints and dispute information off their public records. FINRA's stated process calls for these requests for non-monetary relief to be heard by a panel of three arbitrators, requiring at least two of them to vote in favor of expungement.
Yet some creative lawyers found a way to put expungement claims before a single arbitrator. The "dollar-trick" arbitrations proceed by requesting $1 dollar of relief and expungement. Because the case had a low monetary value, FINRA's forum had had shunted these dollar trick claims to single-arbitrator panels. As the PIABA Foundation reported, stockbrokers using this alternative process paid much less in fees, causing FINRA to miss out on $8,000 or more in revenue per case. Brokers seeking expungement under this process also benefitted by only needing to convince one arbitrator to grant extraordinary relief rather than two. If you're wondering what happens to the claims for $1.00 in damages, the stockbroker usually drops the $1.00 claim at the hearing and simply focuses on his expungement request.
To address this, FINRA recently announced a new rule proposal to stop the "dollar-trick" expungement exploit. Essentially, it aims to close this alternative process down. When comments will be due remains unclear. Although it has been posted to the FINRA website for a few days now, it has not yet shown up on the SEC website.
This rule change is a small step in the right direction. Still, the entire idea may be fundamentally flawed. Private arbitrations should probably not resolve whether the public gets access to information.
Unrelated, Stanford's Rock Center for Corporate Governance is now taking applications for fellows. It's a solid program and has helped connect some really wonderful scholars to the business law community.