Labor & Employment Law

Securities Regulator Takes Active Stance on U-5 Expungements

By Dobin & Jenks

I recently wrote about FINRA's policy on expungements. Of course, FINRA has no control over what any individual state securities commissioner might do. In what appears to be a case of first impression, a state securities regulator has stepped in to try and stop a bargained-for expungement.

Melanie Lubin, the securities commissioner for Maryland, intervened in what is usually a milk-run expungement matter. In an attempt to keep the complaint on broker's record, Ms. Lubin objected to the expungement. At the trial court level she was denied the opportunity to intervene. The DC Appeals court ruled that she could intervene and sent the case back to the trial court.

Get ready boys and girls. Not only will this change the whole expungement atmosphere, it will change the wording of releases. If an expungement is a material part of the settlement, then what will happen if the state regulator intervenes and shouts "STOP!" More litigation, that's what. And for those of us that do litigation, that's good news. For those of you who pay the bills for litigation, this is not a good day.

This is going to become an even more sensitive issue as "product failures", such as Auction Rate Securities, are disclosed on a broker's CRD. Many brokers are already stating that they were just a conduit for the information (or misinformation) given to them by their firms. Does a state securities commissioner really want to stick his or her nose in that one? What a mess.

That's the view from The Law Planet - Jupiter, Florida.

Full post as published by The Law Planet Blog on July 28, 2008 (boomark / email).