A broker prevails in arbitration of a customer complaint, which took only six months to complete. The broker also convinced the panel that the customer claim was unsubstantiated and false, and the panel recommended expungement of the record. Unfortunately, the process of obtaining a final expungement has only just begun. It may take as much as a year of demanding, begging, and cajoling to have the broker's CRD records expunged of a record of the dispute. This is a scenario that is becoming all too common for brokers and their counsel. It is the classic case of the tail wagging the dog. This article provides some insight into how to expedite the expungement process and avoid this unnecessary quagmire.

Expungement often Difficult under Current Rule
Over the past five years, the NASD - at the urging of the states - has adopted procedural rules that have made it exceedingly difficult for brokers to obtain an expungement of Central Registration Depository (CRD) records of unsubstantiated customer-initiated arbitrations. The current expungement rule, 2130, states that in order to obtain expungement of a CRD record, the panel must make significant factual findings in the award. The panel must find that:

Unfortunately, the panel's ruling is not the end of the process. Once the award issues, the broker must have a court confirm the arbitration award.Under the rule, the broker must either:

Fearing what would happen if the NASD were named as a party in the court action, many brokers and their counsel have opted to ask the NASD to investigate the claim and waive its right to take part in the court proceeding. Experience is showing, however, that this option is about to bring the expungement process to a grinding halt. It is not uncommon for the NASD to take six to eight months to investigate the claim and inform the broker whether or not it will oppose expungement. Typically, the NASD simply asks each state where the broker is registered to provide an opinion as to whether or not the matter should be expunged, and only then informs the broker of its position.

Consider How to Expedite the Process
To avoid this problem, give some consideration to naming the NASD as a party to the court proceeding to confirm the arbitration award. Be sure to name the correct NASD entity: NASD Regulation, Inc. By naming the NASD as a party to the court confirmation proceeding, the NASD is subject to the court's deadlines, and cannot take months to determine whether it will oppose expungement. The expungement process may take weeks, instead of months, and you will avoid the problem of the tail wagging the dog.

Stephen E. Csajaghy is an associate in the Denver office. Steve's practice focuses on complex civil litigation involving companies of all sizes. His experience includes litigation of contractual disputes, litigation and arbitration of securities matters and antitrust litigation. Steve can be reached at 303-628-9512 or by email at scsajaghy@rothgerber.com.