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Securities Law Update: Formal Challenges to FINRA BrokerCheck

By: Vincent Lynch, Managing Partner of Lynch & Robbins, P.A., and Oliver Janney, Of Counsel.

The Securities and Exchange Commission (SEC) recently approved amendments to FINRA Rule 8312 governing the release of information through BrokerCheck.  This update summarizes the amendments, which should simplify strategies for broker-dealers and associated persons/financial professionals (financial advisors, registered representatives, account executives) to formally challenge inaccurate or misleading information on their FINRA BrokerCheck Reports.

Financial Professionals Now Have Formal Process to Challenge BrokerCheck Reports

FINRA previously provided a somewhat informal and cumbersome procedure for broker- dealers and their financial professionals to challenge the accuracy of or update their BrokerCheck Reports.   However, effective August 23, 2010, a formal process will now be available. This will become particularly important in light of the expansion of information that will be reported on the BrokerCheck Reports later this year.

The amendments to FINRA Rule 8312 codify FINRA’s current process for disputing the accuracy of or updating information disclosed through BrokerCheck.   This is good news for broker-dealers and financial professionals that have incorrect or misleading information on their BrokerCheck Report.  However, the amendments now allow for more extensive reporting of “Historic Complaints.”  Effective August 23, 2010, FINRA will eliminate the conditions for displaying Historic Complaints in BrokerCheck.  Eliminating these conditions will result in the disclosure via BrokerCheck of all Historic Complaints that became non-reportable after implementation of the WEB CRD on August 16, 1999.

BrokerCheck: Purposes, Solutions and Problems

BrokerCheck was intended to help investors make informed choices about the individuals and firms with which they may wish to do business.  However, many broker- dealers and financial professionals have complained that the BrokerCheck does not provide a full and fair presentation of the matters reported and that investors make hasty and uninformed decisions in selecting their investment professional based upon any perceived negative information contained on the BrokerCheck Report.

Effective November 6, 2010, the disclosure period for BrokerCheck Reports will be increased to show information 10 years (rather than the current two year) after a financial professional ceases to be associated with a broker-dealer.   FINRA also will permanently make publicly available in BrokerCheck Reports information about certain cases involving  formerly registered persons who were registered on or after August 16, 1999, if there has been a final adjudication in the following types of cases: (1) the person was convicted of or pled guilty or nolo contendere to a crime; (2) the person was the subject of a civil injunction in connection with investment-related activity or a civil court finding of involvement in a violation of any investment-related statute or regulation; or (3) the person was named as a respondent or defendant in an investment-related, consumer initiated arbitration or civil litigation which alleged that the person was involved in a sales practice violation and which resulted in an arbitration award or civil judgment against the person.

The BrokerCheck Dispute Process

Significantly, the new formal FINRA dispute process will be available for both (1) complaints alleging the information was: incorrect when filed and (2) complaints asserting that the information has become incorrect due to events subsequent to filing.

The BrokerCheck dispute process is available to any “eligible party” for whom a BrokerCheck report is available.   The dispute process is initiated by completing a notice in a format to be made available on FINRA’s website at www.finra.org.  The party seeking correction must identify the information that the party alleges is inaccurate and provide an explanation as to the reason the information is believed to be inaccurate. Additionally, the eligible party must submit with the notice all available supporting documentation that exists.  FINRA will then determine whether the matter is eligible for investigation.  A list of some of the matters ineligible for investigation are included in the revised Rule 8312.  If FINRA determines that the matter is eligible for investigation, it will add a notation to the BrokerCheck Report that the matter is disputed and later will make an appropriate notation after resolution of the dispute.

For more information about this and the Securities Law Practice of Lynch & Robbins, please visit us at www.floridalawyer.com.

Our Experience

Lynch & Robbins represents member firms and investment professionals in FINRA arbitrations and related matters.   We are committed to providing our clients the most current methods for solving their legal needs. For more information visit us at finraarbitrationlawyers.com.

Vincent Lynch is the Managing Partner of Lynch & Robbins.  In addition to representing Brokers and Broker Dealers in FINRA matters, his practice includes complex federal and state court litigation, and administrative law.  Mr. Lynch has over 18 years of legal experience, and served as a state and Federal Court law clerk. He has been a member of The Florida Bar since 1992.

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