Rankles Raised In FINRA Expungement

The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds.

[C]laimant testified that: (1) Initially, Triad determined that Claimant was not the subject of the complaint filed by the customer and that Triad did not allege that Claimant had engaged in any sales practice violation and, accordingly, Triad made no disclosure on her CRD record of the customer's complaint; (2) Subsequently, in July 2014, after Claimant left Triad and became associated with Respondent, Triad amended Claimant's Form U4 to reflect the customer complaint - although nothing had changed, and there was still no allegation that the Claimant had engaged in any sales practice violation; (3) Triad settled the underlying arbitration case with the customer, without any authorization, knowledge or involvement of Claimant. Thereafter, Triad again updated Claimant's Form U4 to reflect the settlement, although she was not the subject of the customer complaint and there was no allegation that she had been involved in the transaction at issue, and Claimant did not agree to or participate in the settlement; and (4) The terms of the settlement agreement reflect that Triad denied the allegations against it in its entirety and it was made without the admission of the validity of any claim or defense of any party.

Consequently, based on the above referenced evidence and witness testimony, the Arbitrator finds that Claimant was not involved in the alleged investment-related sales practice violation involving the underlying customer because the transaction was processed by Claimant's business partner, and Claimant was only referenced in one sentence of the underlying statement of claim and was not the subject of the underlying claim. Therefore, the claim is false with respect to Claimant as she was not involved with the sales practice violation. The complaint, therefore meets the FINRA Rule 2080(b)(1)(B) standard for expungement.

(1) Initially, Triad determined that Claimant was not the subject of the complaint filed by the customer and that Triad did not allege that Claimant had engaged in any sales practice violation and, accordingly, Triad made no disclosure on her CRD record of the customer's complaint . . .

(2) Subsequently, in July 2014, after Claimant left Triad and became associated with Respondent, Triad amended Claimant's Form U4 to reflect the customer complaint - although nothing had changed, and there was still no allegation that the Claimant had engaged in any sales practice violation;

(3) Triad settled the underlying arbitration case with the customer, without any authorization, knowledge or involvement of Claimant. Thereafter, Triad again updated Claimant's Form U4 to reflect the settlement, although she was not the subject of the customer complaint and there was no allegation that she had been involved in the transaction at issue, and Claimant did not agree to or participate in the settlement . . .

FINRA Rule 4513: Records of Written Customer Complaints

(a) Each member shall keep and preserve in each office of supervisory jurisdiction either a separate file of all written customer complaints that relate to that office (including complaints that relate to activities supervised from that office) and action taken by the member, if any, or a separate record of such complaints and a clear reference to the files in that office containing the correspondence connected with such complaints. Rather than keep and preserve the customer complaint records required under this Rule at the office of supervisory jurisdiction, the member may choose to make them promptly available at that office, upon request of FINRA. Customer complaint records shall be preserved for a period of at least four years.

(b) For purposes of this Rule, "customer complaint" means any grievance by a customer or any person authorized to act on behalf of the customer involving the activities of the member or a person associated with the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer.

FINRA Rule 4530. Reporting Requirements

(a) Each member shall promptly report to FINRA, but in any event not later than 30 calendar days, after the member knows or should have known of the existence of any of the following:

(1) the member or an associated person of the member:

. . .

(B) is the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery;

. . .

(G) is a defendant or respondent in any securities- or commodities-related civil litigation or arbitration, is a defendant or respondent in any financial-related insurance civil litigation or arbitration, or is the subject of any claim for damages by a customer, broker or dealer that relates to the provision of financial services or relates to a financial transaction, and such civil litigation, arbitration or claim for damages has been disposed of by judgment, award or settlement for an amount exceeding $15,000. However, when the member is the defendant or respondent or is the subject of any claim for damages by a customer, broker or dealer, then the reporting to FINRA shall be required only when such judgment, award or settlement is for an amount exceeding $25,000; or . . .

. . .

(e) Nothing contained in this Rule shall eliminate, reduce or otherwise abrogate the responsibilities of a member or person associated with a member to promptly disclose required information on the Forms BD, U4 or U5, as applicable, to make any other required filings or to respond to FINRA with respect to any customer complaint, examination or inquiry. In addition, members are required to comply with the reporting obligations under paragraphs (a), (b) and (d) of this Rule, regardless of whether the information is reported or disclosed pursuant to any other rule or requirement, including the requirements of the Form BD. However, a member need not report: (1) an event otherwise required to be reported under paragraph (a)(1) of this Rule if the member discloses the event on the Form U4, consistent with the requirements of that form, and indicates, in such manner and format that FINRA may require, that such disclosure satisfies the requirements of paragraph (a)(1) of this Rule, as applicable; or (2) an event otherwise required to be reported under paragraphs (a) or (b) of this Rule if the member discloses the event on the Form U5, consistent with the requirements of that form.

14I. (1) Have you ever been named as a respondent/defendant in an investment-related, consumer-initiated arbitration or civil litigation which alleged that you were involved in one or more sales practice violations and which:

(a) is still pending, or;

(b) resulted in an arbitration award or civil judgment against you, regardless of amount, or;

(c) was settled, prior to 05/18/2009, for an amount of $10,000 or more, or;

(d) was settled, on or after 05/18/2009, for an amount of $15,000 or more?

(2) Have you ever been the subject of an investment-related, consumer-initiated (written or oral) complaint, which alleged that you were involved in one or more sales practice violations, and which:

(a) was settled, prior to 05/18/2009, for an amount of $10,000 or more, or;

(b) was settled, on or after 05/18/2009, for an amount of $15,000 or more?

(3) Within the past twenty four (24) months, have you been the subject of an investment-related, consumer-initiated, written complaint, not otherwise reported under question 14I(2) above, which:

(a) alleged that you were involved in one or more sales practice violations and contained a claim for compensatory damages of $5,000 or more (if no damage amount is alleged, the complaint must be reported unless the firm has made a good faith determination that the damages from the alleged conduct would be less than $5,000), or;

(b) alleged that you were involved in forgery, theft, misappropriation or conversion of funds or securities?

Answer questions (4) and (5) below only for arbitration claims or civil litigation filed on or after 05/18/2009.

(4) Have you ever been the subject of an investment-related, consumer-initiated arbitration claim or civil litigation which alleged that you were involved in one or more sales practice violations, and which:

(a) was settled for an amount of $15,000 or more, or;

(b) resulted in an arbitration award or civil judgment against any named respondent(s)/defendant(s), regardless of amount?

(5) Within the past twenty four (24) months, have you been the subject of an investment-related,consumer-initiated arbitration claim or civil litigation not otherwise reported under question 14I(4)above, which:

(a) alleged that you were involved in one or more sales practice violations and contained a claim for compensatory damages of $5,000 or more (if no damage amount is alleged, the arbitration claim or civil litigation must be reported unless the firm has made a good faith determination that the damages from

the alleged conduct would be less than $5,000), or;

(b) alleged that you were involved in forgery, theft, misappropriation or conversion of funds or securities?

FINRA Rule 4530(a)(1)(B) requires prompt reporting when an associated person is "the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery."

Form U4, Item 14I (2) requires reporting of both written and oral investment-related, consumer-initiated complaints alleging a sales practice violation that settled for $15,000 or more.

• Expungement
• FINRA
• U4
• CRD
• Triad Advisors
• Sales Practices
• Customer Complaint