September 28, 2020
The purpose of this letter is to provide the Securities and Exchange Commission with comments on the above referenced proposed rule change which was filed by the Financial Industry Regulatory Authority, Inc. (FINRA) on September 22, 2020.
I am an attorney whose practice is exclusively devoted to the representation of individual and institutional investors in their disputes with the securities industry. Moreover, I am the current Chairman of FINRAs National Arbitration and Mediation Committee (NAMC) and a public member of the NAMC, the former Chairman of FINRAs Discovery Task Force Committee (DTFC), a former member of the Securities Investor Protection Corporation (SIPC) Modernization Task Force and a former President and current Director Emeritus of the Public Investors Arbitration Bar Association (PIABA).
It is my understanding that the proposed amendments would amend the Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes to: (1) impose requirements on expungement requests (a) filed during an investment-related, customer initiated arbitration (customer arbitration) by an associated person, or by a party to the customer arbitration on-behalf-of an associated person (on-behalf-of request), or (b) filed by an associated person separate from a customer arbitration (straight-in request) (2) establish a roster of arbitrators with enhanced training and experience from which a three-person panel would be randomly selected to decide straight-in requests (3) establish procedural requirements for expungement hearings and (4) codify and update the best practices of the Notice to Arbitrators and Parties on Expanded Expungement Guidance that arbitrators and parties must follow.
It is my opinion that the proposed rule amendments would enhance the balancing of the competing interests of providing regulators broad access to information about customer disputes to fulfill their regulatory obligations, providing a fair process that recognizes a brokers interest in protecting their reputation and ensuring investors have greater access to accurate information about brokers.
It is my further opinion that having three arbitrators available to ask questions, request evidence and to serve generally as fact-finders in the absence of customer input (Settled Cases) and/or member firm involvement (Straight-in Requests) would help ensure that a complete factual record is created to support the arbitrators decision in such expungement hearings.
Finally, it is my suggestion that the proposed rule amendments, which would establish a roster of arbitrators with enhanced training and experience, should be closely monitored by FINRA and that all of the relevant statistics that are associated with all expungement requests should be publicly disclosed on the FINRA Dispute Resolution Services website on a monthly basis so that all interested parties can ascertain whether these proposed amendments have been effective in addressing the issues that have been consistently raised as to the overall expungement process.
In summary, these proposed rule changes would be a fair, equitable and reasonable approach that would expedite and facilitate the efficiency of the arbitration forum as well as the investor protection attributes that are all too often compromised through the improper application of the expungement process and, accordingly, should be approved by the SEC on an expedited basis.
Thank you for providing me with the opportunity to submit my comments on this rule filing.