Explained Award: Denied Expungement Reveals Useful Tip About Making Expungement Requests
Posted on Categories Arbitration, Arbitration Awards, FINRA Code of Arbitration, Securities ArbitrationTags , , , ,

Explained Awards -- those that contain the Arbitrator’s reasons for granting or denying the relief requested -- are available to parties under FINRA Rules 12904(g) and 13904(g), and the Arbitrators are paid to oblige, yet few parties request Explained Awards under this provision.

The reason why? The parties are not only required to consent; they must act affirmatively to “jointly request an explained decision.” This requirement makes it very difficult, when parties are engaged in a heated dispute, to obtain the necessary consents from all parties to activate the provision. But, what about situations where the Respondent is a nominal party, with no real “skin in the game” – wouldn’t the “joint request” requirement be far easier for Claimant to effectuate? Those conditions would appear to exist in sole expungement proceedings. Here’s the case that triggered that thought.

Positions of the Parties

In Casolari v. MONY Securities Corporation, FINRA ID #18-04144 (Chicago, 6/24/19), broker Richard Bruno Casolari (CRD #42779) sought expungement relief for three “occurrences” marring his CRD record. These occurrences all involved customer complaints and they all ended in substantial settlements. Naming his former employer (MONY: 1974-2001) as the Respondent, Mr. Casolari also stated a claim for defamation, asking just $1 in damages (ed: see SAA 2018-46-05 for a discussion of this tactic), but this claim was soon voluntarily dropped. Thus, MONY’s Answer stated only that Respondent “took no position with respect to Claimant’s request for expungement but denied having any liability.”

Arbitrator Agrees to Provide Explanation

Generally speaking, when Arbitrators deny expungement relief, they will not provide an explanation. When the Arbitrators grant expungement relief, they are required under Rule 13805(c) to provide a “brief written explanation.” In this proceeding, the Arbitrator reveals in the Award that Claimant specifically made a request for an explanation, and he agreed to do so. Here, the Arbitrator denies the request for expungement relief and, by way of explanation, provides a section in the Award, called “Arbitrator’s Findings.” He explains that the expungement guidance asks that the Arbitrator “ensure” that all of the information for an “informed and appropriate recommendation be in place.” In that regard, he recites that the significant settlements were paid by the firm, this broker only paying personally about 7% of the damages (while adding parenthetically that the broker’s “business partner” paid nothing).

Findings Leading to Denial

The customers were notified before the hearing, according to documentation provided post-hearing, but the age of the disputes and settlements (the latest action being 2006) left the Arbitrator deliberating on the “applicable circumstances” only “to the extent possible.” The Arbitrator also notes that, at a time when Claimant sought a CFA designation, he had good cause, but did not then pursue expungement relief. Too bad, as the “settlement background” might have been more “readily retrievable,” customers might have been “efficiently located,” and “accurate recollections better realized.” The Arbitrator is unable to find that the customers were not induced in settling to agree to expungement, although the Statement of Claim so asserts, as the necessary documentation was not presented to the Arbitrator. Given FINRA’s view of expungement relief as an “extraordinary remedy,” FINRA’s guidance on compiling a persuasive record, plus “the history leading up to this proceeding and its totality of circumstances,” the Arbitrator declines to recommend expungement relief.

(ed: Arbitrators are free to provide reasoning with their decisions; here, the Claimant asked for an explanation, but not under Rule 13904(g). Would it be tactically wise of Claimant to make the request and, if so, why not enlist Respondent’s agreement and present the Arbitrator with a joint request? Why would the broker-dealer refuse? Proceeding under Rule 13905(g) would oblige the Arbitrator to provide an explanation and it would also, without any additional cost to the parties, pay the Arbitrator $400 extra for his efforts. Consider, too, that denying expungement relief without an explanation is easier than granting relief and providing an explanation (without the special compensation of 13905(g)). Why make it easier for the Arbitrator to issue a denial? Is the broker disadvantaged by an explanation accompanying the denial? We think not. The damage to reputation exists on the CRD record. Most likely, the explanation, as the one in this case, will show that the Arbitrator strived to be fair, not that the broker was a surly rogue. That may be better than a denial without explanation -- a silent indictment. In any case, the Award and the explanation, while publicly available, will disappear among the 50,000+ Awards in FINRA’s Awards Library.) (SAC Ref. No. 2019-29-03)

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