It's already tough for brokers to expunge erroneous information from their CRD reports. Now, it might get even more difficult.
That's because the NASDR has proposed a detailed set of rules governing how brokers can correct inaccurate customer dispute information on their records. The organization also proposes to involve itself as a party in expungement disputes.
The regulator seeks to limit expungement of customer dispute information to cases in which an arbitrator or court bases the expungement order on one of three findings. Data could be purged if:
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The information involves factual impossibility or “clear error,” such as the person named in a proceeding didn't work for the firm;
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The claim is without legal merit; and
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The information is determined to be defamatory.
Since the inception of the CRD system in 1981, court-ordered expungements have generally been honored. Arbitrator-ordered expungements that met certain requirements were also honored until January 1999.
At that time, the NASDR imposed a moratorium on arbitrator-ordered expungements in disputes between public customers and firms or associated persons, unless confirmed by a court. The change addressed state regulators' concerns that cases were being settled, with expungement of information as part of the deal, regardless of the complaint's merits.
“The NASDR believes additional safeguards and procedures in the expungement process are necessary to ensure that investor protection interests are served,” its proposal states.
Attorneys say the NASDR's latest proposal is like adding insult to injury. “A broker is already subject to some profound unfairness because it's so easy for an erroneous entry to find its way onto a CRD,” says securities attorney Matt Bartle, a partner at the Kansas City, Mo.-based firm of Berkowitz Feldmiller Stanton Brandt Williams and Shaw. “It is troubling if the NASD is making it more difficult for a broker to clean up erroneous information.”
The naming of the NASDR is also troubling because “it gives [the organization] the right to object to the confirmation of an expungement order,” says Boca Raton, Fla.-based attorney Alan Foxman, who was formerly with the NASD's arbitration unit.
“I can't image the NASDR making this process more difficult, particularly since you already need a court order for CRD expungement,” says securities attorney Jim Eccleston of Chicago-based law firm Eccleston & Associates. “It doesn't make any sense.”
At press time, the NASDR was accepting comments through Nov. 24. To view the proposal, go to www.nasdr.com/pdf-text/0165ntm.txt.
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