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CALIFORNIA CORPORATE & SECURITIES LAW

BrokerCheck – FINRA’s Dread Permanent Record

Many a school child has received the awful warning to be careful lest some offense be entered on his or her “permanent record”.  As required by statute (15 U.S.C. § 78o-3(i)), the Financial Industry Regulatory Authority, Inc. (aka FINRA) has maintained a sort of permanent record for securities professionals known as “BrokerCheck“.  See FINRA Rule 8312.  Just how indelible is one’s disciplinary history on FINRA’s BrokerCheck?  California trial courts have the equitable power to order the expungement of public records, but will they exercise that authority to wipe away prior transgressions?

In Flowers v. Financial Industry Regulatory Authority, Inc., 2017 Cal. App. LEXIS 959, the plaintiff, a former registered representative, sued FINRA in California Superior Court seeking to have removal of his disciplinary history from BrokerCheck.  FINRA removed the case to the U.S. District Court.  Judge Dana Sabraw, however, remanded the action back to state court.  Flowers v. Fin. Indus. Regulatory Auth., Inc., 2015 U.S. Dist. LEXIS 180677, 2015 WL 9487450.  FINRA then successfully demurred.  The Court of Appeal affirmed the trial court’s ruling on the grounds that the plaintiff had failed to exhaust his administrative remedies by seeking relief from publication from FINRA, the Securities and Exchange Commission, and finally the U.S. Court of Appeals.

I did note one small misstatement in the Court of Appeal’s opinion: “BrokerCheck was established when in 2009”.  In fact, BrokerCheck has a much longer history, beginning in 1981 when the North American Securities Administrators Association (aka NASAA) and the National Association of Securities Dealers, Inc. (aka NASD) created the Central Registration Depository (CRD).   The CRD consolidated paper-based state licensing and regulatory procedures into a nationwide computer system.  The BrokerCheck system provides disclosure to the public of some, but not all, of the information in the CRD.  The NASD originally referred to the BrokerCheck system as the “Public Disclosure Program”.  In 2003, FINRA rebranded the program as “NASD BrokerCheck”.  See Exchange Act Release No. 54,053, at 1 n.6 (June 27, 2006).

For those with a deeper interest in expunging FINRA disciplinary histories, see Christine Lazaro, Has Expungement Broken BrokerCheck?, 14 J. BUS. & SEC. L. 125 (2014).

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