Expungement

True or false: If an arbitration panel later orders a customer complaint expunged from a representative's CRD record, the firm's own internal retention obligation for the records it created and kept concerning that complaint is also eliminated.

1. A.FalseCorrect. CRD expungement changes the representative's public disclosure record; it does not retroactively eliminate the firm's separate, independent duty to retain its own internal records of the matter.
2. B.TrueWrong. Expungement relief runs to the representative's disclosure record, not to the firm's separate recordkeeping obligation, which is unaffected by that outcome.

Why: False. CRD expungement changes what shows on the representative's public regulatory disclosure record; it does not retroactively eliminate the firm's independent obligation to retain its own internal books and records concerning the matter.

A representative properly disclosed a felony charge when it was filed. The prosecutor later drops the case and the court dismisses it. He asks his firm to delete the disclosure so his record shows nothing. What is the correct handling?

1. A.The firm should leave the record untouched, since the original disclosure was accurate when it was filed.Wrong. A change in the matter's status is itself reportable, so leaving the record stale is not an option.
2. B.The firm should delete the entry, because a dismissed charge is legally treated as though it had never been brought.Wrong. Deletion requires expungement, which the employing firm has no power to grant on request.
3. C.The firm should amend the record to report the dismissal as the disposition; deletion requires expungement.Correct. The record is a history, so the remedy for a good outcome is to record that outcome accurately.
4. D.The representative should file a request with FINRA to seal the entry, which is granted where no conviction resulted.Wrong. No sealing mechanism of that kind exists, and the absence of a conviction does not by itself remove an entry.

Why: A change in the status of a disclosed matter is itself a reportable development, so the firm must amend the record to show the dismissal as the disposition of the charge. What the amendment does not do is erase the entry, because the record is a chronological account of what happened rather than a summary of what remains outstanding. Removal of information from the central registration record requires expungement, which is available only through a narrow process ending in an arbitration award or court order that a regulator can act on, not through a request to the employing firm. In practice, a dismissal recorded as the disposition is a substantially different item from an open charge, and the record shows exactly that.

A firm investigates a written customer complaint accusing a representative of forging an account form, examines the signatures, and concludes the accusation is baseless. Does that conclusion remove the complaint from the representative's Form U4?

1. A.Yes; once the firm establishes the allegation is untrue, the entry is removed as factually inaccurate.Wrong. The entry records that an allegation was made, which remains accurate whatever the firm concluded about it.
2. B.No; the allegation itself triggers disclosure, and only the expungement process can remove the entry.Correct. Letting an employer erase allegations it investigated itself would drain the disclosure of all value.
3. C.Yes, provided the customer confirms in writing that she withdraws the complaint after seeing the firm's findings.Wrong. A withdrawal is reported as part of the disposition; it is not a mechanism for deleting the record.
4. D.No; and the firm must additionally report itself for having accepted a forged form into its records.Wrong. The firm concluded no forgery occurred, so there is no established books-and-records failure to report.

Why: Disclosure of a customer complaint is triggered by the allegation being made, not by anyone's assessment of whether it is well founded, so a firm's internal conclusion does not delete the item. If it did, the disclosure would be worth nothing, because the party best placed to investigate is also the party with the strongest interest in a clean record for its own representative. The record is updated by reporting the matter's disposition as it develops, which is how a complaint that goes nowhere comes to look different from one that produced an award or a settlement. Removal of the entry altogether is possible only through the expungement process, which requires an arbitration or court determination rather than a firm's own finding.

A customer files a complaint and later requests it be removed from her representative's record as part of a settlement. The representative asks the principal to simply delete the complaint from the firm's records to satisfy the customer. Can the principal do this?

1. A.No, removing the complaint from CRD requires the formal expungement process under Rule 2080Correct. Rule 2080 requires a defined expungement process, typically involving an arbitration or court finding, before customer dispute information can be removed.
2. B.Yes, as long as the firm documents the customer's written consent to the removalWrong. Customer consent alone does not substitute for the required expungement process under Rule 2080.
3. C.No, complaint records may never be removed from CRD under any circumstancesWrong. Removal is possible through the formal Rule 2080 expungement process; it is not an absolute, permanent bar.
4. D.Yes, since the customer herself requested the removal as part of the settlementWrong. A private settlement request does not satisfy the formal expungement process required to remove CRD information.

Why: No. Removing customer dispute information from CRD requires a formal expungement process under Rule 2080, typically involving an arbitration or court finding that the claim is factually impossible, clearly erroneous, or the representative was not involved. A principal cannot simply delete a recorded complaint informally to accommodate a settlement request.