SEC Tells FINRA to Raise the Gate For Ineligible Expungement Case

March 23, 2023

In 2018, a registered representative filed a FINRA Arbitration Statement of Claim seeking to expunge eight customer complaints from her industry record. A FINRA arbitrator dismissed the case. After the rep filed an appeal, in 2020, the judge vacated the FINRA arbitration. The rep re-filed her expungement case with FINRA, which told her that her claims were ineligible for adjudication in its forum. They weren't ineligible when she paid FINRA's fees to start the process in 2018; but, after a court vacated the arbitration award, now, for some reason, FINRA the gate-keeper refuses to raise the gate. Why are we reporting about this crap five years later? Because the mess wound up at the SEC, which has to rule on FINRA's closed-gate policy. 

A BrokerCheck Record

According to online FINRA BrokerCheck disclosures as of March 23, 2023, Cynthia Mary Couyoumjian was first registered in 1986; and she has

  • three disclosures under the heading "Regulatory Event" (from 2005 to 2007);
  • 10 disclosures under the heading "Customer Dispute - Settled" (from 2004 to 2018);
  • two disclosures under the heading "Customer Dispute --   Closed-No Action/Withdrawn/Dismissed/Denied"  (from 2002 and 1999); and
  • two disclosures under the heading "Customer Dispute -- Pending." 

2018 FINRA Arbitration Statement of Claim

In 2018, Couyoumjian filed a FINRA Arbitration Statement of Claim to expunge about eight of the above-referenced customer disputes from her Central Registration Depository record ("CRD").

SIDE BAR: The FINRA Arbitration case is likely: 
In the Matter of the Arbitration Between Cynthia Mary Couyoumjian,Claimant, v. First Allied Securities, Inc. and LPL Financial LLC, Respondents
(FINRA Arbitration Award 18-04362 / February 11, 2020)

2020: FINRA Arbitrator Denies Expungements But Court Vacates

By 2020, we come across the following posture of Coyuoumjian's expungement efforts [Ed: footnotes omitted]:

[O]n February 10, 2020, a FINRA arbitrator considered but denied Couyoumjian’s claims for expungement. Couyoumjian subsequently filed a petition to vacate that award in a Colorado state court. She argued that the arbitrator had “manifested a disregard for the law and exceeded his powers,” in part on the ground that “the vast majority of the [presented] evidence” allegedly supported her expungement claim. The court granted Couyoumjian’s request to vacate the arbitration award without explanation on July 15, 2020.

On October 23, 2020, Couyoumjian filed another arbitration statement of claim again seeking to expunge from the CRD information about the same eight customer disputes. On October 29, 2020, FINRA issued a letter to Couyoumjian from a senior case specialist stating:

FINRA has determined that the claims you have alleged in your statement of claim are not eligible for arbitration. Therefore, pursuant to the Customer Code Rule 12203(a) or Industry Code Rule 13203(a), we decline to accept your claim.

On November 19, 2020, Couyoumjian filed an application for review of this denial letter with the Commission.

at Page 3 of In the Matter of the [sic] Cynthia Mary Couyoumjian For Review of Action Taken by FINRA (SEC Opinion, '34 Act Rel. No. 97179; Admin. Proc. File No. 3-20154 / March 21, 2023)

2020: A Matter of Ineligibility

In her petition to the SEC, Couyoumjian argued that FINRA's declaration that her claims for expungement were ineligible for adjudication before its arbitration forum constituted the prohibition or limitation of an individual's access to services offered by the self-regulatory-organization in violation of Section 19(d) of the Securities Exchange Act.

In contrast, FINRA argued that the SEC lacked authority to review its determination that Couyoumjian’s claims are ineligible for arbitration because, in fact, FINRA had provided Couyoumjian with access to its arbitration forum and issued a Final Award addressing her expungement requests. 

FINRA's Misguided Invocation of Court-Vacated Arbitration Award 

In considering FINRA's argument, the SEC found in part that [Ed: footnotes omitted]:

[T]he prior arbitration award was vacated and has no continuing legal effect. FINRA therefore cannot invoke it as evidence that Couyoumjian has already received access to its arbitration forum. By denying Couyoumjian the opportunity to obtain a new, valid arbitration award regarding her claims, FINRA is prohibiting or limiting her access to a key aspect of FINRA’s arbitration service. That action is reviewable under Section 19(d).

at Page 4 of the SEC Opinion

The Denial Violated FINRA's Rules

Having found that FINRA denied Couyoumjian an opportunity to obtain a new arbitration award regarding her claims, the SEC next considered whether pursuant to Section 19(f) of the Exchange Act:

  • if FINRA's denial was in accordance with FINRA's rules, and
  • if those rules are/were applied in accordance with Section 19(f) of the Exchange Act. 

SIDE BAR: Section 19(f) of the Exchange Act:

(f) Dismissal of review proceeding

In any proceeding to review the denial of membership or participation in a self-regulatory organization to any applicant, the barring of any person from becoming associated with a member of a self-regulatory organization, or the prohibition or limitation by a self-regulatory organization of any person with respect to access to services offered by the self-regulatory organization or any member thereof, if the appropriate regulatory agency for such applicant or person, after notice and opportunity for hearing (which hearing may consist solely of consideration of the record before the self-regulatory organization and opportunity for the presentation of supporting reasons to dismiss the proceeding or set aside the action of the self-regulatory organization) finds that the specific grounds on which such denial, bar, or prohibition or limitation is based exist in fact, that such denial, bar, or prohibition or limitation is in accordance with the rules of the self-regulatory organization, and that such rules are, and were applied in a manner, consistent with the purposes of this chapter, such appropriate regulatory agency, by order, shall dismiss the proceeding. If such appropriate regulatory agency does not make any such finding or if it finds that such denial, bar, or prohibition or limitation imposes any burden on competition not necessary or appropriate in furtherance of the purposes of this chapter, such appropriate regulatory agency, by order, shall set aside the action of the self-regulatory organization and require it to admit such applicant to membership or participation, permit such person to become associated with a member, or grant such person access to services offered by the self-regulatory organization or member thereof.

In pertinent part, the SEC found that [Ed: footnotes omitted]:

The Federal Arbitration Act expressly provides that a party may challenge an arbitration award by moving to vacate the award in court—which Couyoumjian successfully did here. And FINRA identifies no authority suggesting that a claim cannot be re-arbitrated in its arbitration forum once a court vacates a previous arbitration award denying that claim.

FINRA asserts that Couyoumjian should not be allowed “to access FINRA’s arbitration forum and relitigate expungement until she gets the outcome she wants.” And we have repeatedly sustained FINRA action preventing applicants from relitigating final arbitration awards. But here, there is no final award—the prior arbitration award was vacated. And FINRA has identified no basis for treating Couyoumjian’s vacated arbitration award as if it were final and binding. We therefore find that FINRA’s decision to deny Couyoumjian access to its arbitration forum to obtain a new, final arbitration award was not in accordance with its rules.

at Pages 6 - 7 of the SEC Opinion

Accordingly, the SEC ordered that:

  • the action taken by FINRA denying Couyoumjian’s request for access to its arbitration forum be set aside; and
  • FINRA grant Cynthia Mary Couyoumjian access to its arbitration forum.

Bill Singer's Comment

Okay -- except at the end of the day, Couyoumjian started her expungement request in 2018 and it's now 2023, which means she just went on a wild goose chase for five years and is now directed back to the very FINRA arbitration forum where this all began. It's nothing more than a colossal "never mind." Clearly, FINRA's expungement process is flawed -- and that's assuming we should even call that mess a "process." 

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