This Rule applies to all requests to expunge customer dispute information from the CRD system. Except as otherwise provided in this Rule, all provisions of the Code apply to such expungement requests.
(a) Filing an Expungement Request against a Member Firm
(1) Applicability
An associated person may request expungement of customer dispute information from the CRD system by filing a statement of claim under Rule 13302 against a member firm at which the person was associated at the time the customer dispute arose, unless barred by Rule 13805(a)(2).
(2) Limitations
(A) An associated person shall not file a claim requesting expungement of customer dispute information from the CRD system against the member firm at which the person was associated at the time the customer dispute arose if:
(i) a panel held a hearing to consider the merits of a request for expungement of the same customer dispute information;
(ii) a court of competent jurisdiction previously denied a request to expunge the same customer dispute information;
(iii) the investment-related, customer-initiated arbitration, civil litigation or customer complaint associated with the customer dispute information has not closed;
(iv) a panel or court of competent jurisdiction previously found the associated person liable in a customer arbitration or civil litigation associated with the same customer dispute information;
(v) the customer dispute information involves the same conduct that is the basis of a final regulatory action taken by a securities regulator or self-regulatory organization;
(vi) more than two years have elapsed since the investment-related, customer-initiated arbitration or civil litigation associated with the customer dispute information has closed;
(vii) there was no investment-related, customer-initiated arbitration or civil litigation associated with the customer dispute information, and more than three years have elapsed since the date that the customer complaint was initially reported to the CRD system; or
(viii) the associated person is prohibited from seeking to expunge the customer dispute information under Rule 12805(a)(1)(A).
(B) Subject to the six-year eligibility requirement of Rule 13206(a), an associated person is not barred from requesting expungement of customer dispute information pursuant to Rule 13805(a)(2) if:
(i) the request for expungement is made pursuant to Rule 13805 within two years of October 16, 2023, and the disclosure sought to be expunged is associated with an investment-related, customer-initiated arbitration or civil litigation that closed on or prior to October 16, 2023; or,
(ii) the request for expungement is made pursuant to Rule 13805 within three years of October 16, 2023, and the disclosure sought to be expunged is associated with a customer complaint initially reported to the CRD system on or prior to October 16, 2023.
(3) Expungement Request
The expungement request must be filed with the Director, pursuant to Rule 13302, and 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, if applicable; 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.
(4) Panel Decides Expungement Request
A three-person panel selected pursuant to Rule 13806 must hold an expungement hearing, pursuant to Rule 13805(c), to consider and decide the expungement request. At the conclusion of the expungement hearing, the panel must issue an award in accordance with Rule 13805(c)(9). If the associated person withdraws or does not pursue the expungement request, the panel shall deny the expungement request with prejudice.
(b) Notifications
(1) To Customers
(A) The associated person shall:
(i) serve all customers whose investment-related, customer-initiated arbitrations, civil litigations, or customer complaints are a subject of the expungement request with a copy of the statement of claim within 10 days of filing the statement of claim with the Director, unless the panel determines that extraordinary circumstances make such service impracticable;
(ii) serve all customers whose investment-related, customer-initiated arbitrations, civil litigations, or customer complaints are a subject of the expungement request with a copy of any answer within 10 days of the filing of each answer with the Director, unless the panel determines that extraordinary circumstances make such service impracticable;
(iii) serve the customers by first-class mail, overnight mail service, overnight delivery service, or hand delivery; and
(iv) file with the panel proof of service for the statement of claim and any answers, copies of all documents provided by the associated person to the customers, and copies of all communications sent to the customers and responses received by the associated person from the customers.
(B) The Director shall:
(i) notify all customers whose investment-related, customer-initiated arbitrations, civil litigations, or customer complaints are a subject of the expungement request of the time, date and place of any prehearing conferences and the expungement hearing using the customers’ current addresses provided by the party seeking expungement; and
(ii) provide the notified customers with access to all documents relevant to the expungement request that are filed in (a) the arbitration requesting expungement relief and (b) a customer-initiated arbitration brought by the customer under the Customer Code that is a subject of the expungement request.
(2) To State Securities Regulators
(A) 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 13805(a)(3).
(B) The Director shall provide state securities regulators with access, subject to confidentiality restrictions, to all documents relevant to the expungement request that are filed in (i) the arbitration requesting expungement relief and (ii) any other customer-initiated arbitration brought under the Customer Code that is associated with the customer dispute information that is a subject of the expungement request.
(3) Notification of Participation by State Securities Regulators
If an authorized representative of the notified state securities regulators notifies the Director no later than 30 days after the last answer is due under the Code that the authorized representative intends to attend and participate in the expungement hearing (i) the Director shall notify the authorized representative of the time, date and place of any prehearing conferences and the expungement hearing and (ii) the panel shall allow the authorized representative to attend and participate in the prehearing conferences and the expungement hearing in accordance with the requirements of Rule 13805(c)(6).
(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 recorded hearing sessions regarding the expungement request.
(2) Appearance by Associated Person
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. 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 prehearing conferences and 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 at 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 prehearing conferences and expungement hearing pursuant to Rule 13208.
(5) Customer and Customer’s Representative Participation during the Expungement Hearing
(A) Customer Introduces Evidence
The panel must allow the customer or the customer’s representative to introduce evidence during the expungement hearing. If the customer or the 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 the customer’s representative. If a customer or witnesses called by the customer or the customer’s representative testify during the expungement hearing, the associated person requesting expungement 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 requesting expungement 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) Attendance and Participation of An Authorized Representative of State Securities Regulators
(A) If the required notice has been received by the Director from an authorized representative of the notified state securities regulators pursuant to Rule 13805(b)(3), the authorized representative may attend and participate in the prehearing conferences and the expungement hearing. The authorized representative may (i) provide the position or positions of the notified state securities regulators on the expungement request in writing or (ii) attend and participate at the expungement hearing in person or by video conference. The panel shall not allow the participation of the authorized representative to materially delay the scheduling of the expungement hearing.
(B) At the expungement hearing, the authorized representative may (i) introduce documentary, testimonial or other evidence; (ii) cross-examine any witnesses; and (iii) present opening and closing arguments if the panel allows any party to present such arguments.
(C) The panel must allow any persons participating in the expungement hearing to state objections to evidence presented by the authorized representative during the expungement hearing. The panel must also allow any persons participating in the expungement hearing to cross-examine any witnesses called by the authorized representative during the expungement hearing.
(7) Panel Requests Additional Documents or Evidence
The panel may request from the associated person requesting expungement, and from the member firm at which the person was associated at the time the customer dispute arose, any documentary, testimonial or other evidence that it deems relevant to the expungement request.
(8) 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.
(9) 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)(9)(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)(9)(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 Decision of Customer or Authorized Representative Not to Attend or Participate
The panel shall not give any evidentiary weight to a decision by a customer or an authorized representative of the state securities regulators not to attend or participate in an expungement hearing when making a determination of whether expungement is appropriate.
(10) 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.
