The NASD received 363 comments on its proposed detailed set of rules governing how brokers can correct inaccurate customer dispute information on their CRD records, the NASD told Registered Rep. Magazine. The comment period ended Tuesday after being extended another 10 days.
Of the 363 comments, 319 came from Raymond James Financial Services. All of the firm’s brokers voted against all four of the NASD’s questions on proposed changes in the CRD process.
Spokesperson Tom Holloman says “the NASD will review the comments and decide from then how to proceed with the whole expungment proposal.”
It's already difficult for brokers to expunge erroneous information from their CRD reports, which are used by investors for background information on brokers. Under the NASD’s proposed rules, it would get even tougher.
“I can't imagine the NASDR making the process more difficult than it already is, particularly since you already need a court order for CRD expungement,” says an East Coast-based Merrill Lynch producer. “It makes no sense whatsoever,” says a Solomon Smith Barney rep in the South.
The NASD has also proposed 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: the information involves factual impossibility or “clear error,” such as the person named in a proceeding didn't work for the firm; the claim is without legal merit; and the information is determined to be defamatory.
The SIA opposes the NASD’s proposed changes in the handling of negative and erroronous CRD information, calling it “unfair and ineffective.” The SIA said in a letter to the NASD that the changes are too severe and may end efforts to remove negative information altogether. The SIA also says the proposals would undermine the authority of arbitration panels used by investors to resolve disputes.
“Some of the NASD’s proposals are a road block [to brokers],” SIA spokesperson Jim Spellman says. “We all share the same goal: we all want CRD information to be accurate and reflective of a broker’s or a firm’s disciplinary record.” Spellman says that outdated, inaccurate information has no place on a broker’s CRD.
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 compounding a problem that already exists.
“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, according to attorney Alan Foxman, who was formerly with the NASD's arbitration unit.