This Rule applies to all requests to expunge customer dispute information from the CRD system, except that when a party requests expungement of customer dispute information during a simplified arbitration pursuant to Rule 12800(d), only those sections of this Rule that are specifically referenced in Rule 12800(d) through (f) shall apply. Except as otherwise provided in this Rule, all other provisions of the Code apply to such expungement requests.
(a) Requesting Expungement Under the Customer Code
(1) Requesting Expungement When Named as a Respondent
(A) Applicability
An associated person named as a respondent in an investment-related, customer-initiated arbitration may request expungement during the arbitration of the customer dispute information associated with the customer’s statement of claim, unless barred by Rule 12805(a)(1)(B). If the associated person does not request expungement in the arbitration, the associated person shall be prohibited from seeking to expunge the customer dispute information associated with the customer’s statement of claim in any subsequent proceeding.
(B) Limitations
An associated person shall not file a request for expungement of customer dispute information if:
(i) a panel held a hearing to consider the merits of the associated person’s request for expungement of the same customer dispute information; or
(ii) a court of competent jurisdiction previously denied the associated person’s request to expunge the same customer dispute information.
(C) Expungement Request
(i) An associated person must include the expungement request in the answer or a separate pleading requesting expungement. If the associated person requests expungement in a pleading other than an answer, the request must be filed no later than 60 days before the first scheduled hearing; otherwise, the associated person must file a motion pursuant to Rule 12503 requesting an extension to file the expungement request.
(ii) The expungement request must include:
a. the applicable filing fee;
b. the CRD number of the party requesting expungement;
c. each CRD occurrence number that is the subject of the request;
d. the case name and docket number associated with the customer dispute information; and
e. an explanation of whether expungement of the same customer dispute information was (i) previously requested and, if so (ii) how it was decided.
(D) Panel Decides Expungement Request
(i) During Investment-Related, Customer-Initiated Arbitration
If an associated person requests expungement pursuant to Rule 12805(a)(1)(C) and the investment-related, customer-initiated arbitration closes by award after a hearing, the panel shall consider and decide the expungement request during the arbitration in accordance with Rule 12805(c), and issue its decision on the expungement request in the same award in accordance with Rule 12805(c)(8). If the associated person withdraws or does not pursue the expungement request, the panel shall deny the expungement request with prejudice.
(ii) Investment-Related, Customer-Initiated Arbitration Closes Other Than by Award or by Award Without a Hearing
If an associated person requests expungement pursuant to Rule 12805(a)(1)(C) and the investment-related, customer-initiated arbitration closes other than by award or by award without a hearing:
a. the panel shall not consider the associated person’s request for expungement of customer dispute information; and
b. the associated person may file a request for expungement of the customer dispute information as a new claim under Rule 13805(a) against the member firm at which the person was associated at the time the customer dispute arose, provided the expungement request is not barred pursuant to Rule 13805(a)(2).
(2) Requesting Expungement on Behalf of an Unnamed Person
(A) Applicability
With the written consent of the unnamed person, a party to an investment-related, customer-initiated arbitration may request expungement on behalf of the unnamed person during the arbitration of the customer dispute information associated with the customer’s statement of claim.
(B) Limitations
A party to an investment-related, customer-initiated arbitration shall not request expungement on behalf of an unnamed person if the request is barred pursuant to Rule 12805(a)(1)(B).
(C) Expungement Request
(i) A party requesting expungement on behalf of an unnamed person must file the request with the Director in accordance with Rule 12805(a)(1)(C)(ii).
(ii) The request must include the Form Requesting Expungement on Behalf of an Unnamed Person, signed by the unnamed person and the party that is seeking expungement of customer dispute information on the unnamed person’s behalf.
(iii) The request must be filed as soon as practicable, but no later than 60 days before the first scheduled hearing; otherwise, the requesting party must file a motion pursuant to Rule 12503 requesting an extension to file the expungement request.
(D) Form Requesting Expungement on Behalf of an Unnamed Person
(i) By signing the Form Requesting Expungement on Behalf of an Unnamed Person, the unnamed person agrees that the person shall be bound by the panel’s decision on the expungement request.
(ii) By signing the Form Requesting Expungement on Behalf of an Unnamed Person, the unnamed person agrees to maintain the confidentiality of any documents and information from the investment-related, customer-initiated arbitration to which the unnamed person is given access and to adhere to any confidentiality agreements or orders associated with the arbitration.
(iii) By filing and serving an expungement request, the requesting party agrees to represent the unnamed person and the unnamed person’s interests and to pursue the request for expungement on behalf of the unnamed person during the investment-related, customer-initiated arbitration.
(E) Deciding Expungement Request
(i) Investment-Related, Customer-Initiated Arbitration Closes by Award After a Hearing
If the investment-related, customer-initiated arbitration closes by award after a hearing, the panel shall consider and decide the expungement request during the arbitration in accordance with Rule 12805(c), and issue its decision on the expungement request in the same award in accordance with Rule 12805(c)(8). If the requesting party withdraws or does not pursue the expungement request, the panel shall deny the expungement request with prejudice.
(ii) Investment-Related, Customer-Initiated Arbitration Closes Other than by Award or by Award Without a Hearing
If the investment-related, customer-initiated arbitration closes other than by award or by award without a hearing:
a. the panel shall not consider the party’s request for expungement of customer dispute information on behalf of the unnamed person; and
b. the unnamed person may file a request for expungement of the customer dispute information as a new claim under Rule 13805(a) against the member firm at which the person was associated at the time the customer dispute arose, provided the expungement request is not barred pursuant to Rule 13805(a)(2).
(iii) Unnamed Person May Not Intervene in the Investment-Related, Customer-Initiated Arbitration
a. If a party to the investment-related, customer-initiated arbitration does not request expungement on behalf of the unnamed person, the unnamed person shall not file a motion to intervene in the arbitration to request expungement of customer dispute information associated with the customer’s statement of claim.
b. The unnamed person may file a request for expungement of the customer dispute information as a new claim under Rule 13805(a) against the member firm at which the person was associated at the time the customer dispute arose, provided the filing of the request is not barred pursuant to Rule 13805(a)(2).
(3) No Separate Requests For Expungement Filed Against a Customer
An associated person shall not file a request for expungement of the customer dispute information as a new claim against a customer separate from the investment-related, customer-initiated arbitration.
(b) Notification to State Securities Regulators
The Director shall notify state securities regulators, in the manner determined by the Director in collaboration with state securities regulators, of an expungement request within 15 days of receiving an expungement request that includes all the elements described in Rule 12805(a)(1)(C)(ii).
(c) Expungement Hearing
In order to issue an award containing expungement of customer dispute information, the panel must comply with the following requirements.
(1) Recorded Hearing Sessions
The panel must hold one or more separate recorded hearing sessions regarding the expungement request.
(2) Appearance by Associated Person and Party Requesting Expungement
The associated person whose information in the CRD system is the subject of the request to expunge customer dispute information must appear in person or by video conference at the expungement hearing. A party requesting expungement on behalf of an unnamed person or the party’s representative must also appear in person or by video conference at the expungement hearing. The panel shall decide the method of appearance.
(3) Customer’s Attendance and Participation
(A) Entitled to Attend and Participate
All customers whose investment-related, customer-initiated arbitrations, civil litigations, or customer complaints are a subject of the expungement request are entitled to attend and participate in all aspects of the expungement hearing. The customer may provide the customer’s position on the expungement request in writing.
(B) Method of Attendance and Participation
All customers whose investment-related, customer-initiated arbitrations, civil litigations, or customer complaints are a subject of the expungement request may attend and participate in the expungement hearing by telephone, in person, or by video conference.
(4) Customer Representation
All customers whose investment-related, customer-initiated arbitrations, civil litigations, or customer complaints are a subject of the expungement request are entitled to representation at the expungement hearing pursuant to Rule 12208.
(5) Customer and Customer’s Representative Participation during the Expungement Hearing
(A) Customer Introduces Evidence
The panel must allow the customer or customer’s representative to introduce evidence during the expungement hearing. If the customer or customer’s representative introduces evidence during the expungement hearing, a party may state objections to the introduction of the evidence.
(B) Customer’s Testimony
The panel must allow the customer and witnesses called by the customer or the customer’s representative to testify at the expungement hearing and be questioned by the customer or customer’s representative. If a customer or witnesses called by the customer or customer’s representative testify during the expungement hearing, the associated person or party requesting expungement on behalf of an unnamed person may cross-examine them.
(C) Associated Person’s or Others’ Testimony and Evidence
The panel must allow the customer or the customer’s representative to state objections to evidence presented during the expungement hearing. The panel must also allow the customer or the customer’s representative to cross-examine the associated person, the party requesting expungement on behalf of an unnamed person and any other witnesses called during the expungement hearing.
(D) Opening and Closing Arguments by Customer or Customer’s Representative
The panel must allow the customer or the customer’s representative to present opening and closing arguments if the panel allows any party to present such arguments.
(6) Panel Requests Additional Documents or Evidence
The panel may request from the associated person, or party requesting expungement on behalf of an unnamed person, any documentary, testimonial or other evidence that it deems relevant to the expungement request.
(7) Review Settlement Documents
The panel shall review any settlement documents related to customer dispute information that is the subject of the expungement request and consider the amount of payments made to any party and any other terms and conditions of the settlement. In addition, the panel shall inquire and fully consider whether a party conditioned a settlement of the arbitration upon any agreement, written or otherwise, not to oppose the request for expungement in cases in which the customer does not participate in the expungement hearing or the requesting party states that a customer has indicated that the customer will not oppose the expungement request.
(8) Award
(A) Unanimous Decision Required to Issue Award Containing Expungement Relief
(i) In order to issue an award containing expungement relief, the panel must find unanimously that one or more of the following grounds for expungement has been established:
a. the claim, allegation or information is factually impossible or clearly erroneous;
b. the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
c. the claim, allegation or information is false.
(ii) The panel shall not issue, and the Director shall not serve, an award containing expungement relief based on grounds other than those specified in paragraph (c)(8)(A)(i) of this Rule.
(B) Required Contents of Award Containing Expungement Relief
The panel must indicate in the arbitration award which of the grounds for expungement identified in paragraph (c)(8)(A)(i) of this Rule serve(s) as the basis for its expungement order, provide a written explanation of the reason(s) for its finding that one or more of those grounds apply to the facts of the request, and identify any specific documentary, testimonial or other evidence on which the panel relied in awarding expungement relief.
(C) Evidentiary Weight of Customer’s Decision Not to Attend or Participate
The panel shall not give any evidentiary weight to a customer’s decision not to attend or participate in an expungement hearing when making a determination of whether expungement is appropriate.
(9) Forum Fees
The panel must assess all forum fees for hearing sessions in which the sole topic is the determination of the appropriateness of expungement against the party or parties requesting expungement.
