FINRA Expungement Takes on Aspects of a Psychiatric Case

February 2, 2021

FINRA's expungement process routinely comes under attack from all quarters. Public advocates decry the seemingly facile and questionable manner by which serious allegations of consumer fraud are deleted from public databases. Those who represent associated persons complain that unsubstantiated and even fraudulent aspersions are unfairly memorialized, and that the time and costs of removal are prohibitive. A recent FINRA expungement case highlights many of the problems inherent in the flawed process.

Case In Point

In a FINRA Arbitration Statement of Claim filed in June 2020, associated person Claimant Ruediger sought the expungement from his Central Registration Depository records ("CRD") of a customer dispute. In the Matter of the Arbitration Between Daniel John Ruediger, Claimant, v. Ameriprise Financial Services, LLC, Respondent (FINRA Arbitration 20-01850)

Respondent Ameriprise supported the requested relief but asserted various affirmative defenses. The customer involved in the underlying complaint was notified of the hearing but did not participate. 

Expungement Recommendation

The sole FINRA Arbitrator recommended the expungement of the customer complaint based upon a FINRA Rule 2080 finding that the customer's claim, allegation, or information is factually impossible, clearly erroneous, or false; and that Claimant Ruediger was not involved in n the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. 

Bill Singer's Comment

Notwithstanding that I love to tell a good tale, truly, I cannot improve upon FINRA Arbitrator Kenneth James Pedersen's raconteurial skills, as set forth in his rationale:

The Customer, a resident of Bend, OR, contended in a December 2016 email to Respondent that Claimant, a resident of Portland, OR, recommended an annuity investment to him that was unsuitable in that it carried unreasonable surrender charges, and was inconsistent with his objectives. Upon review, Respondent found the annuity to be appropriate to the Customer's goals and objectives as expressed by him and, by letter dated January 24, 2017, rejected his complaint. The Customer did not pursue the matter additionally in any forum, and no money or other consideration was exchanged. 

The evidence at the January 19, 2021 hearing established that Claimant was not involved in the alleged unsuitable investment recommendation. The contact with the Customer was made by a different representative of Respondent, who disclosed the nature of the annuity investment and explained the surrender fee structure to him and his wife. Claimant was not a supervisor of the representative who worked with the Customer. Claimant was not directly or indirectly involved in the transaction at issue and did not know of it until after the other representative quit working for Respondent. Due to an apparent psychiatric issue, the other representative began to harass Claimant and his family. The harassment took the forms of alarming social media posts and, as pertinent here, making false accusations about him to his clients and co-workers. At one point, the other representative travelled across several states to Respondent's headquarters and attempted to impersonate Claimant and thereby injure his reputation. The other representative persuaded the Customer to file a complaint against Claimant with Respondent. 

Based on these facts, the information in the CRD system is "clearly erroneous" under FINRA Rule 2080(b)(1)(A) in that Claimant had no role in influencing the Customer to purchase the annuity or in implementing the purchase. Even if he had, the evidence shows that the annuity was not unsuitable for the Customer's investment goals and timeline. The Customer's email contending otherwise is not credible given his execution of the "Variable Annuity Purchase Summary and Disclosure" form. 

The evidence clearly establishes that Claimant was not involved in any sale to the Customer. In fact, he was unaware of the transaction that gave rise to the alleged investment related sales practice violation until months after the other representative left the employ of Respondent. As such, Claimant is entitled to expungement of the incident from his CRD under FINRA Rule 2080(b)(1)(B). 

The allegation is also false under Rule 2080(b)(1)(C). Claimant played no role in the Customer's decision to invest in the annuity and was not the supervisor of the representative who worked with the Customer. As such, Claimant is not chargeable with failing to supervise the other representative. 

Finally, I agree with Respondent that retaining the information on Claimant's CRD records would serve no positive regulatory purpose and would in fact create a false impression of impropriety where none exists. . . .