Back a long time ago in elementary school, I remember a teacher who would try to threaten my class into good behavior, by announcing to the class that if we were not well-behaved, we would get in trouble and it would go on our "permanent record." As we got a little older we recognized that there was no such thing as a permanent record that would follow us around in life pointing out various problems including our 3rd grade problems. But later, if you wind up working in the broker-dealer world, you discover that the teacher was right after all: there IS a permanent record and it can cause a lot of problems and can cost a broker clients and income whenever an improper disclosure is made and sticks around on the Form U4 or Form U5.
Probably a couple of times a month or more, I get calls from brokers needing information on trying to get something removed from his or her Form U4, to take it off of their "permanent record" so to speak. Sometimes it is a customer complaint or arbitration matter or some type of disclosure put on a Form U5 by a firm that the broker thinks is defamatory. More times than not, I tell the caller that I don't think that I can help them as I don't think there is a valid way to remove the offending disclosure from the CRD record and Form U4. Sometimes, however, we find good cases that are appropriate to run through the expungement process.
If you're thinking about considering pursuing an expungement case, here are a few things to consider. This is an example of some of the points that an experienced securities lawyer would want to discuss with a prospective client about a possible expungement matter:
1. Is the disclosure true? Firms, and brokers, have an obligation to disclose certain information on their U4 and U5, and the disclosure should be true. If the disclosure is not truthful, then it needs to be reviewed closely. If, however, it is completely true and you are involved in the situation, getting the disclosure expunged simply because you don't like it on your record is probably not possible.
2. What evidence do you have to show the falsity of the disclosure? The better the evidence, the better chances of getting the matter expunged, or at least amended to a more accurate, and hopefully more favorable, disclosure. If the disclosure is client-related, can you meet the test of FINRA Rule 2080, and show that the disclosure was either: a) factually impossible or clearly erroneous, b) that you were 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.3. What is the disclosure costing me? When you think about this, think in terms of reputation and money. Is the disclosure hurting your reputation? Are competing brokers pointing out the disclosure and using that to land clients that shy away from you due to the disclosure? In terms of money, how has the disclosure affected you? Has it cost you revenue? Has it cost you the chance to grow your business? What is it doing to your book of business, and how will it affect that value, and your marketability in the future?
4. How would your life be better or worse if you were able to get the disclosure expunged or changed?
5. What is it worth to you, in terms of time and money, to try to change the disclosure or get it expunged from your record completely? Consider this: I heard of a broker who has what he believes is an improper disclosure of a significant arbitration case on his Form U4. The broker didn't want it disclosed as he or she was not named as a respondent, but the firm insisted that the broker was "the subject" of the arbitration, despite the fact that the broker was not involved in the transactions that formed the basis for the investors' claims. The case is now over and the broker's U4 can be updated to show that the investors got nothing on their claims, but the disclosure remains. The broker believes that the disclosure has already cost over $20,000 in missed revenue already, and that number will likely increase. What would it be worth to you in terms of time, reputation and money to seek expungement if this were you? How could expungement affect your future client engagement and revenues?
It may be that, after considering these items, you don't think it's worthwhile to seek expungement or an amendment to an existing disclosure. Or you may believe that it is critical to pursue any option available to you to clean up your record. Whatever works for you is fine, but make an informed decision, and don't let inaccurate disclosures needlessly affect your career. If you don't stand up for yourself, who will?