Securities Fraud Blog | Find out if your broker is liable for your losses

Archive for April 2011

Apr/11

29

SEC Filed Civil Action Against Magnum d’Or Resources, Inc., & Four Individuals

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On April 29, 2011, it was announced on the SEC’s website that the Securities and Exchange Commission filed a civil action in the United States District Court for the Southern District of Florida against Magnum d’Or Resources, Inc. and its former chief executive officer and president Joseph J. Glusic of Henderson, Nevada, for antifraud and registration violations and against Dwight Flatt of Delray Beach, Florida, David Della Sciucca, Jr. of Fort Lauderdale, Florida, and Shannon Allen of Miami, Florida for registration violations.

In the SEC’s complaint, Magnum issued stock pursuant to false Form S-8 registration statements, and used bogus consultants to funnel more than $7 million in illicit stock proceeds back into the company. The SEC alleges that in facilitating this kickback scheme, Magnum garnered the assistance of Flatt, Sciucca, and Allen who liquidated Magnum S-8 stock, kept a portion of the sales proceeds, and then returned more than $7 million of the remaining sales proceeds to Magnum under the guise of loan agreements. The SEC’s complaint also alleges that Magnum made false and misleading statements in its Form S-8 registration statements and in various press releases during the relevant time period.

In the SEC report it was announced that without admitting or denying the allegations in the Commission’s complaint, and subject to court approval, Glusic and Allen have consented to the entry of judgments that would enjoin them from future violations of Sections 5(a) and 5(c) of the Securities Act, and enjoin Glusic from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Glusic has also agreed to pay disgorgement of $1,878 with prejudgment interest of $231, and a $50,000 civil penalty. Glusic has further agreed to entry of an order imposing permanent officer and director and penny stock bars. Allen has agreed to pay disgorgement of $80,742 with prejudgment interest of $6,258 and a $25,000 civil penalty. He has also agreed to entry of an order imposing a five-year penny stock bar and requiring him to surrender for cancellation approximately 1.4 million shares of Magnum common stock.

Also, the SEC alleges that Magnum and Glusic violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC also alleges Section 5(a) and 5(c) violations against Flatt, Sciucca, and Allen.

The Commission today issued an Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934 against Magnum, to determine whether the registration of each class of its securities should be revoked or suspended for a period not exceeding twelve months based on its failure to file required periodic reports. The Division of Enforcement alleges that Magnum has failed to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder by failing to file periodic reports required by these provisions. A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations of the Division contained in the Order are true, and to provide Magnum an opportunity to respond to these allegations.

It was also reported that the Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.

If you or a family member has become an alleged victim of Magnum d’Or Resources, Inc., or it’s brokers, call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

29

Steven Brasner Charged With Scamming Seniors in Insurance Fraud

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Steven M. Brasner, an agent with Infinity Financial Group LLC in Davie, Fla., was arrested April, 2010 and charged with 22 counts of grand theft, insurance fraud and aggravated white collar crime.

Axa Equitable Life Insurance Co., which sued Mr. Brasner in 2008 in connection with this case, had notified Florida’s state regulators of the suspicious policies. Axa notified the regulators in adherence to state rules that require carriers to report suspected fraud activity.

According to an InvestmentNews.com article, officials in Florida, including the state finance chief and attorney general, charged that Mr. Brasner created a scheme to sell policies taken out on the lives of senior citizens on the secondary market, then identified his victims and scammed them into buying a policy. As part of the scheme, he falsified the clients’ net worth. Though it’s legal to sell policies over the secondary market, purchasing insurance with the express purpose of selling it violates state insurable interest laws.

Brasner made more than $1.6 million in commissions on the policies, based on some $78 million in total death benefits, according to regulators.

Florida State officials also claim that Mr. Brasner told the senior clients that he would pay them between 3% to 5% of the face value of the life insurance policies following the two-year contestability period when the contracts were sold over the secondary market. He also allegedly told the elderly Axa clients that they wouldn’t have to pay for the premiums out of pocket.

If you or a family member have become victims of this alleged fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. 
 

We stand up and fight for the rights of consumers.

Representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Apr/11

29

INVESTMENT ADVISER, FUND MANAGER AND TWO INDIVIDUALS CHARGED BY SEC WITH SECURITIES FRAUD INVOLVING CLIENT FUNDS

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It was announced on the SEC’s website, April 7, 2011, that The Securities and Exchange Commission filed of a civil injunctive action in U.S. District Court in Los Angeles, California against MAM Wealth Management, LLC (MAM), MAMW Real Estate General Partner, LLC (MAMW), Alex Martinez and Ralph Sanchez, alleging fraud in connection with client investments in a $10.3 million risky real estate venture. According to the Commission’s complaint, from July 2007 through March 2009, Martinez, a MAM and MAMW principal, and Ralph Sanchez, a MAM registered representative and MAMW principal, had 50 of their advisory clients invest in MAM Wealth Management Real Estate Fund, LLC (Fund). The complaint alleges that Martinez and Sanchez misrepresented to some clients that the Fund was a safe, relatively liquid investment, was earning 9% per year, and would show profits in three years.

This complaint alleges that the defendants have violated the antifraud provisions of the federal securities laws, including violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder by MAM, MAMW, Martinez and Sanchez and Sections 206(1) and 206(2) of the Investment Advisers Act by MAM and Martinez and aiding and abetting violations of Sections 206(1) and 206(2) of the Investment Advisers Act by Sanchez. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties.

The complaint also alleges that they used their discretionary authority over other clients’ funds to invest them in the Fund, even though it was unsuitable for their conservative investment goals. The complaint alleges that many accounts were retirement accounts and that the Fund was an unsuitable investment for clients who did not have the ability and willingness to accept the risks of losing their entire investment. The complaint further alleges that the defendants caused the Fund to use client funds to make risky mortgage loans.

If you feel you or a family member has become an alleged victim of  MAM, MAMW, Alex Martinez, Ralph Sanchez or any of their brokers, or a similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

28

Recovering Your Investments from a Ponzi Scheme

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We have all heard of Bernie Madoff and his widely orchestrated Ponzi scheme, but his wasn’t the first and it will not be the last. Ponzi schemes have victimized numerous investors for years. Don’t let yourself be caught up in a Ponzi scheme.  Soreide Law Group, PLLC, is here to help you recover your losses and navigate our clients through this very complicated process.

Briefly, Ponzi schemes use the money of new investors to pay old investors, making the investment seem attractive.  A Ponzi scheme will eventually collapse.  The Securities and Exchange Commission (“SEC”) can freeze the assets of the Ponzi scheme before the collapse, ensuring proper distribution of the remaining assets. Also, arbitration and litigation remain an option for recovering the losses in a Ponzi scheme
If involved in a Ponzi scheme, there are also some favorable recovery options available to the investor:

1.)The Investor can file a Receivership Claim in court. A receivership is created by the court at the request of the United States Securities and Exchange Commission (the “SEC”) in a securities fraud case involving a large number of investors and a large  amounts of money.   The SEC will usually ask the court to create a receivership and to appoint a receiver. 

2.)The Investor can file a Fair Fund Claim.  The SEC established the “Fair Fund” to help distribute disgorgements and penalties to victims of financial and/or securities fraud.

3.)The Investor can file a Theft Loss Tax Deduction with the IRS. The victims of financial fraud who have no reasonable prospect of recovery may deduct up to 95% of their investment losses in the Ponzi scheme as ordinary losses.

The Ponzi scheme seems even more difficult when investors receive demand letters and are sued in collection actions by bankruptcy trustees and receivers who seek to “clawback” money that some of the Ponzi scheme investors have already received. 

Protect yourself and your investments from the unscrupulous brokers and brokerages who turn your investments into Ponzi schemes. Call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

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Apr/11

28

David Lerner Associates Sanctioned by the SEC For Allegedly Selling Illiquid REITs To Customers

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Back in 2004, David Lerner Associates, agreed to a “Cease and Desist” Order issued by the SEC regarding the sale of unsuitable REITs (Real Estate Investment Trusts) to 4 customers of the firm. The SEC Order read that one of the employees made investment recommendations “that his customers purchase illiquid REIT securities on margin collateralized by the customers’ bond holdings were contrary to the objectives of his customers who desired highly-liquid bond or tax-free bond issues. The margin purchases of illiquid REIT securities using the customers’ liquid bonds as collateral effectively rendered the customers’ holdings illiquid. The customers could not obtain cash by selling the REIT securities, which were illiquid, or by selling bonds, which collateralized the REIT securities.” 
Three of the customers “sustained losses arising from the illiquid REIT securities that were purchased for their accounts, as follows: (1) an 86-year old customer lost $103,281; (2) a 75-year old customer lost $37,778; and (3) a 55-year old customer lost $34,420″.
According to the SEC Order, another one of Lerner’s employees made a  ”recommendation and offer of securities that were unsuitable for his customer violated Section 17(a) of the Securities Act. [The employee's] investment recommendations were contrary to the objectives of his customer, a married, middle-aged man with two children residing in his home. The customer wanted a diversified investment for the approximately $30,000 in his IRA account. This IRA account constituted nearly all of the customer’s savings and was the customer’s financial safety net. [The employee's] concentrated the customer’s IRA account in an illiquid REIT security and did not provide the diversification that the customer desired. [The] customer sustained a loss of $6,518 arising from the illiquid REIT securities [the employee] purchased for his IRA account.”
 
If you feel you or a family member has become an alleged victim of David Lerner Associates or it’s brokers, or a similar investment in REITs, call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

28

Do You Have Investments in CapWest Securities, Inc.?

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CapWest Securities Inc. has reported in its recent filing with the SEC that three years of losses, a decline in net capital and many lawsuits — “raise substantial doubt about the company’s ability to continue as a going concern.” CapWest, is owned by Capstone Financial Group, reported a net loss of $109,000 last year on revenue of nearly $3 million.

Many broker-dealers who sold private placements have gone under.

“If, as a result of losses from operations of from litigation, the company were to fail to meet regulatory net-capital requirements, it would be required to raise additional capital to continue operations,” the firm’s management noted in the filing. “Although the company’s parent may assist from time to time with funding for the company, there can be no assurance that the company will be successful in obtaining additional capital on terms favorable to the company, or at all.”

In the court filings it was noted that, CapWest brokers sold around $22 million of private placements issued by Provident Royalties LLC, which the SEC charged with fraud in 2009. CapWest also sold an unknown amount of DBSI Inc., a packager of real estate deals that was popular among independent broker-dealers.

Currently CapWest is working with its insurance company to settle several outstanding legal actions against the firm, and faces other claims in FINRA arbitrations this year. It also faces five pending civil actions in court according to the filings.

If you or a family member bought private-placements with CapWest Securities, Inc., call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

28

The Top 25 Broker-Dealers in the Country

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Soreide Law Group, PLLC, would like you, the investor, to know when pursuing a FINRA arbitration to recover your investments losses, it is important to make sure the award is collectable. The following list represents the firms with the top 25 highest excess net capital.  We represent clients against the following firms:
Rank Firm Excess net capital ▼
1 Raymond James Financial Services Inc. $253,341,000
2 Ameriprise Financial Services Inc. $118,000,000
3 LPL Financial LLC $88,946,000
4 Royal Alliance Associates Inc. $40,318,190
5 Waddell & Reed Inc. $39,313,114
6 Northwestern Mutual $34,338,000
7 Axa Advisors LLC $30,233,807
8 PrimeVest Financial Services Inc. $28,570,000
9 H.D. Vest Financial Services $28,028,550
10 SagePoint Financial Inc. $27,421,973
11 NFP Advisor Services Group (& Affiliates) $25,559,905
12 FSC Securities Corp. $24,950,133
13 ING Financial Partners Inc. $24,571,000
14 Woodbury Financial Services $24,526,893
15 Financial Network Investment Corp. $23,253,000
16 Lincoln Financial Network $22,028,919
17 Genworth Financial Securities Corp. $13,419,377
18 MML Investors Services LLC $12,626,782
19 Princor Financial Services Corp. $12,484,271
20 Multi-Financial Securities Corp. $12,081,000
21 Commonwealth Financial Network $9,943,447
22 National Planning Corp. $9,922,000
23 Park Avenue Securities LLC $8,663,000
24 Lincoln Investment Planning Inc. $8,621,208
25 Cadaret Grant & Co. Inc. $7,217,251

 This information was obtained from InvestmentNews.com website.

Call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

28

INSURANCE FRAUD IN FLORIDA

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The State of Florida has some of the strictest insurance fraud laws in the country.  Soreide Law Group, PLLC, is currently representing clients who have been defrauded by their insurance agents, financial advisors, and/or stock brokers in insurance transactions involving:
  • Viatical Settlements;
  • Life Settlements; and
  • Stranger Originated Life Insurance or (“STOLI”) transactions.
 
We are now seeing more and more stockbrokers and financial advisors suggesting their clients purchase large universal life insurance policies with the promise of a big profit on resale after the two-year contestability period passes. There is a promise that the profit from the sale would not only cover the premiums, but would put a profit in the insured’s pocket with enough money to purchase another policy, and do it all over again. Unfortunately, these brokers are over promising and grossly over representing the legality and liquidity of the resale of the insurance policy, especially when it was purchased for the sole purpose of reselling. Part of this alleged scam may include falsifying medical records. We have seen many similar violations with respect to life settlements and STOLI transactions.
If you or a family member have become victims of this alleged fraud, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. 

We stand up and fight for the rights of consumers.

Representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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Apr/11

28

Attention Capital Financial Services Investors:

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Soreide Law Group, PLLC, wants to speak with you about your Capital Financial private-placement investments. Call 888-760-6552.  Recently, it has been reported that Capital Financial Services Inc., with 332 representatives, sold Provident Royalties LLC, preferred stock from 2006 to 2009, according to an SEC cease-and-desist order. Capital Financial brokers also sold $63 million of the offerings by Provident, which the SEC charged with fraud in 2009. The reps received an 8% commission — or $5 million — for selling the Provident deals. The firm collected a 1% due diligence fee, or $600,000. Capital Financial also sold $100 million of private placements for Medical Capital Holdings Inc. Medical Capital has also been charged with fraud.

“Capital Financial never conducted independent verification of any of the offering materials provided by Provident,” the SEC stated in its order, which it issued April 6.

The broker-dealer “also never received audited or even unaudited financial statements for any of the Provident offerings,” the SEC said. “The only financial information Capital Financial received regarding Provident was an unaudited consolidated balance sheet review.”

“Capital Financial failed to disclose to customers that although it was collecting a due diligence fee, it was not conducting any due diligence,” the SEC order stated. When in fact, the firm collected the $600,000 as a due diligence fee but incurred no expenses to match the fee, the SEC alleged. “At no time did Capital Financial hire independent counsel, an accounting firm, contact third parties regarding Provident’s business, or hire consultants to review the Provident offerings,” the SEC alleged.

If you bought private placements, including but not limited to, Provident Royalties LLC, Medical Capital Holdings, Inc., or Capital Financial Services, Inc., Attorney Lars Soreide, of Soreide Law Group, PLLC, would like you call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

27

Rules of Expungement for Securities Industry Members Revised by NASD

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The National Association Of Securities Dealers (NASD) has implemented a new rule governing the expungement of customer dispute information from the Central Registration Depository (CRD) that will make it more difficult for securities industry members seeking to remove allegations of wrongdoing from their CRD records even after an award in their favor.
The new rule favors the broadest disclosure of information — even allegations determined to be unfounded — at the expense of the brokerage community’s interest in securing a fair process and protecting their members’ reputations from false accusations.

The following FAQs were obtained from the FINRA website and are as follows:

FINRA Rule 2080 (Formerly NASD Rule 2130) Frequently Asked Questions

The following questions and answers provide guidance regarding the operation of FINRA Rule 2080, which was formerly NASD Rule 2130.

1. What type of information can be expunged under Rule 2080?

Rule 2080 pertains to customer dispute information. This is typically information involving disputes between customers and member firms or their associated persons that has been reported on Forms U4 or U5 in response to the Customer Complaint/Arbitration/Civil Litigation Disclosure question(s) and associated disclosure reporting page(s). The requirements of Rule 2080 do not apply to information concerning intra-industry disputes between firms and associated persons with no customer party that typically has been reported on Form U5 in response to the Reason for Termination question or the Internal Review or Termination Disclosure questions and associated disclosure reporting page(s). Under existing CRD policy, and consistent with the 1999 moratorium, FINRA may execute, without a court order, arbitration awards rendered in disputes between firms and associated persons that contain directives to expunge information other than customer dispute information, provided that the arbitration panel states that expungement relief is being granted because of the defamatory nature of the information. See Notices to Members 99-09 and 99-54. These expungements are not covered by Rule 2080.

2. Under the moratorium in effect from January 19, 1999 through April 11, 2004 (Notice to Members 99-09), respondents were required to obtain court confirmation of an arbitration award containing expungement relief. Is it still necessary under Rule 2080 to obtain court confirmation of an expungement award?

Yes. Rule 2080 continues the requirement started with the January 1999 moratorium that a court of competent jurisdiction must order, or confirm arbitration awards directing, expungement before FINRA will expunge customer dispute information from the CRD system. This includes arbitration awards issued after a decision on the merits and arbitration awards in which the parties have agreed to expunge customer dispute information as part of the settlement and then presented the settlement to the arbitration panel for inclusion in a stipulated award.

3. How do the requirements of Rule 2080 differ from the procedures used to request expungement under the moratorium?

Under Rule 2080, members and associated persons still must obtain a court order directing expungement or confirming an arbitration award containing an expungement directive. In addition, Rule 2080 requires that FINRA be named as a party to the court proceedings, and be served with all appropriate documents, unless FINRA waives that requirement. To obtain FINRA’s waiver, the party seeking expungement must follow the steps outlined below in response to Question No. 7.

4. What steps should a respondent in an arbitration proceeding take to seek expungement under Rule 2080?

In brief, a party seeking expungement in an arbitration proceeding should request expungement, preferably in his or her answer, counterclaim or statement of claim. The arbitrators will decide whether to grant a request for expungement on the basis of one or more of the three standards specified in Rule 2080. In addition, FINRA’s Code of Arbitration Procedure for Customer Disputes and Code of Arbitration Procedure for Industry Disputes (collectively, the “Arbitration Code”) contains special procedural requirements relating to requests to expunge customer dispute information, including that arbitrators hold a recorded in-person or telephonic hearing, review settlement documents and consider the amount of payments made to any party and any other terms and conditions of settlement. If the arbitrators grant expungement relief, the Arbitration Code also requires that they briefly explain in the award the factual basis(es) for finding that expungement is appropriate under one or more of the Rule 2080 standards. For more information regarding these requirements, see Arbitration Code Rules 12805 and 13805 and Regulatory Notice 08-79. 

5. What affirmative finding(s) must arbitrators make for FINRA to waive participation in the court confirmation process?

The arbitrator must, after complying with Arbitration Code Rule 12805 or 13805, make an affirmative finding that the subject matter of the claim or the information in the CRD system meets one or more of the three standards, set forth in Rule 2080. Without such an affirmative finding, FINRA would have no basis under Rule 2080 to waive the requirement that it be named as a party in the court confirmation process.

(1) The claim, allegation, or information is factually impossible or clearly erroneous. This standard, for example, would provide a basis for expungement for an individual who was named in an arbitration claim but was not employed or associated with the member firm during the relevant time.

(2) The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. This is an objective standard based on CRD reporting requirements. This standard would require an affirmative arbitral finding that the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. Under this standard, dismissal of a claim, by itself, would not be a sufficient basis for ordering expungement.

(3) The claim, allegation, or information is false. Under this standard, the adjudicator will assess the evidence in the case, make an affirmative finding that the claim, allegation, or information is false, and order expungement relief. (The terms “sales practice violation,” “investment-related,” and “involved” as used in these three standards have the same meaning as the definitions of these terms in the Form U4 in effect at the time the expungement order is issued.)

In addition, if the expungement relief is based on judicial or arbitral findings other than those described above, FINRA, in its sole discretion and under extraordinary circumstances, may waive the obligation to name FINRA as a party if it determines that:

 (1) The expungement relief and accompanying findings on which it is based are meritorious; and

 (2) The expungement would have no material adverse effect on investor protection, the integrity of the CRD system, or regulatory requirements.

 6. Do the standards described above apply to court proceedings in addition to arbitrations?

Yes. Although courts are not obligated to adhere to the standards enunciated in Rule 2080, FINRA will use the Rule 2080 standards in determining whether to oppose the expungement request and will recommend that the court use the standards when considering the request for expungement.

7. If the arbitrators award expungement, what is the next step for the member or associated person seeking expungement?

The party seeking expungement should send to FINRA at the address set forth below a written request for a waiver, along with relevant documents such as the statement of claim, the answer, any settlement agreement, the arbitration award, and any other relevant documents.

Rule 2080 – Expungement Notice/Waiver Request
FINRA Registration and Disclosure Department – 3rd Floor
9509 Key West Ave.
Rockville, MD 20850

FINRA staff will review the information to determine whether the award complies with Arbitration Code Rule 12805, or 13805, and whether the expungement relief was awarded based on one or more of the standards in Rule 2080. Provided that the award reflects compliance with the Arbitration Code, and contains an affirmative finding that the expungement meets one or more of the standards in Rule 2080, FINRA staff will generally grant the waiver. See Notice to Members 04-16.

8. What happens after FINRA staff receives a request for a waiver?

Upon receipt of a request for a waiver, FINRA staff will provide to the States where the individual is, or is seeking to be, registered a copy of the waiver request and any accompanying documents. FINRA staff will also conduct the review described above in response to Question 7, and will provide a written response granting or denying the waiver request. If a party whose waiver request is denied still wishes to proceed, he or she must name FINRA as a party, and serve FINRA with notice as set forth in response to Question 11, in any litigation to confirm the award. State authorities will make their own determination on whether to oppose the expungement.

If the party is seeking expungement as part of a court proceeding, FINRA must be named as a party and served as set forth in response to Question 11. Based on the reasons given for requesting expungement, and after reviewing relevant documents and information, FINRA staff will determine whether to oppose. As with waiver requests, FINRA will provide relevant state authorities with notice of the litigation and may also provide copies of the types of documents referenced above. State authorities will make their own determination on whether to oppose the expungement.

9. What is the reason for FINRA, and possibly State, participation in court confirmation proceedings?

FINRA and State participation in the court confirmation proceeding is an additional safeguard to ensure that courts are aware of the standards of Rule 2080 and relevant regulatory and investor protection interests. There is currently no procedure in place to ensure that courts are made aware of the investor protection, public policy, and regulatory considerations implicated by expungement of customer dispute information. Although courts are not obligated to adhere to the standards enunciated in Rule 2080, the Rule gives FINRA and the States the opportunity to participate in the court confirmation process and make courts fully aware of investor protection and regulatory concerns relating to inappropriate expungements.

10. What is the role of arbitrators or other fact finders in the expungement process?

A critical element in this process is FINRA’s reliance on the fact finders (i.e., arbitrators and courts) who have reviewed evidence regarding the underlying dispute to determine whether the expungement relief is appropriate based on at least one of the standards in Rule 2080. Fact finders are expected to carefully evaluate the evidence and award expungement relief only in appropriate cases. If arbitrators have followed the appropriate Arbitration Code procedures, and made one or more of the findings under Rule 2080, FINRA will rely on arbitrators’ findings and will generally waive participation in the court proceedings to confirm arbitration awards. Arbitrators considering expungement relief are required to complete training provided by FINRA Dispute Resolution regarding the Arbitration Code procedures for expungement, the Rule 2080 standards and the requirement to make specific findings if they decide that expungement is appropriate.

11. If FINRA tells the party seeking expungement that FINRA must be named as a party in the court confirmation process, where should FINRA be served with the court papers?

FINRA should be served through its registered agent for service, Corporate Creations, in the State in which the party is seeking expungement.

12. Will FINRA participate in every court proceeding to confirm an expungement directive?

No. As noted in response to Question Nos. 3, 7 and 8 above, member firms and associated persons may ask FINRA to waive the requirement to name FINRA as a party on the basis that the expungement order meets at least one of the standards for expungement articulated in Rule 2080. This will save members and FINRA time and expense by enabling FINRA to review the awards and findings of the arbitrators and to determine whether a waiver is appropriate, as discussed in response to Question No. 7.

Although FINRA expects that arbitrators will consider the overwhelming majority of expungement requests, a judge may also make the affirmative finding required under Rule 2080. However, as noted in response to Question Nos. 3 and 8 above, and Question No. 16, below, member firms or associated persons seeking expungement relief in court (as plaintiff or defendant) will be required to name FINRA as a party. FINRA will determine whether to oppose the expungement request based on the reason(s) for requesting expungement, and supporting evidentiary material.

13. On what basis will FINRA determine to participate in a court confirmation proceeding to oppose an expungement directive?

FINRA will generally participate in the court confirmation proceeding and generally oppose confirmation of the expungement directive if an expungement award was not issued in compliance with Arbitration Code Rule 12805 or 13805, or if arbitrators do not make an affirmative finding as required under Rule 2080. As a further means to ensure that the court is made aware of the investor protection and regulatory implications of an expungement, States may choose to intervene if they have concerns regarding whether investor protection or regulatory issues will be fairly considered.

14. What would happen procedurally if an arbitration panel orders the expungement of customer dispute information from a Form U5 on the basis that it is defamatory?

As noted in response to Question No. 1, consistent with the 1999 moratorium, FINRA may continue to expunge, without a court order, expungement directives contained in arbitration awards rendered in disputes between registered representatives and firms in which the arbitration panel states that expungement relief is being granted because of the defamatory nature of the information. Accordingly, FINRA will expunge this information from the sections of the Form U5 relating to reasons for terminations or internal reviews without requiring court confirmation of the order. If, however, the arbitration panel orders expungement of customer dispute information from any other section of the Form U5 or from the Form U4, the order is subject to the requirements of Arbitration Code Rule 12805 or 13805, and Rule 2080 with respect to the additional expungement relief.

15. How does a respondent request expungement if the parties settle the arbitration?

In the event of settlement, the parties could jointly request a stipulated award from an arbitration panel that would include a request that the panel make affirmative findings and order expungement based on one or more of the standards in Rule 2080. The arbitrators would be required to follow the procedures set forth in Arbitration Code Rule 12805 or 13805 in considering any such request for expungement. The arbitrators would then determine whether expungement should be granted based on one or more of the three standards set forth in Rule 2080. Note: Parties who plan to seek expungement relief notwithstanding a settlement should immediately advise the FINRA arbitration staff member assigned to the case that they plan to do so, so that the case is not closed before the expungement request is considered. As discussed in response to Question No. 17, the Arbitration Code contains strict time deadlines and other conditions for reopening closed cases. See Arbitration Code Rules 12905 and 13905.

16. How would parties obtain a court order if they reach a settlement outside of the arbitration process that includes an expungement directive?

The parties may initiate an arbitration (and pay applicable fees) for the limited purpose of incorporating their settlement and requesting the affirmative findings specified in Rule 2080 in an award. As noted in response to Question No. 5, the arbitrators would need to follow the procedures set forth in Arbitration Code Rule 12805, or 13805, and review sufficient evidence upon which to base their Rule 2080 findings. In such cases, parties would still need to obtain a court order confirming the award directing expungement. Alternatively, if parties choose to commence litigation (in lieu of arbitration) to obtain expungement relief, they must name FINRA as a party.

17. How should parties proceed if they reach a settlement after the arbitrators issue a decision on the merits?

Under FINRA Arbitration Code Rule 12905, or 13905, parties may jointly request that arbitrators reopen cases to make substantive changes to an arbitration award, provided the request is made within 10 days after service of an award or notice of a case closing. Arbitrators have discretion to grant or deny any such request. State laws also may prohibit or restrict a party’s ability to reopen a closed arbitration case. FINRA will not provide legal advice on applicable state law.

18. How did FINRA determine the standards for expungement of customer dispute information?

In crafting the standards set forth in FINRA’s rules regarding expungement, FINRA was guided by the interests of regulators in having accurate and relevant information to fulfill their regulatory responsibilities, the interests of the brokerage community in having a fair process to protect their reputations where appropriate, and the interests of investors in having access to accurate and meaningful information about brokers with whom they now or in the future may engage in business. FINRA recognizes that expungement of a CRD record under any circumstances is an extraordinary remedy and should be used only when the expunged information has no meaningful regulatory or investor protection value. FINRA believes that the criteria enumerated in the expungement rules meet this standard.

This very valuable information was obtained on FINRA’s website.

Call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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