A recent California state appellate court’s decision in Lickiss v. FINRA has opened the door to the possibility that information in a broker’s Central Registration Depository (CRD) System record might not need to be erroneous in order for the broker to seek expungement.

Expungement is the removal of information from a broker’s record in the CRD System, typically involving customer complaints or involuntary termination.  FINRA Rule 2080 states that although FINRA must usually be named as an additional party in an expungement proceeding, FINRA may waive this requirement if the broker’s request for expungement is based upon at least one of the following affirmative findings by a judge or arbitration panel:

• The claim, allegation or information is factually impossible or clearly erroneous.
• The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds.
• The claim, allegation or information is false.

Often, when a firm recruits successful registered representatives to leave a competitor, the hiring firm offers significant financial incentives or up-front payments.  These compensation packages are generally not disclosed to customers when they are asked to transfer their accounts to the representative’s new firm.

In an effort to address potential conflicts of interest related to recruitment compensation packages, FINRA recently released  Regulatory Notice 13-02 requesting comment on a proposed rule that would require disclosure by the hiring firm of the financial packages paid to registered representatives as part of their transitions. The new rule would require the hiring firm to provide disclosure before the financial advisor’s customer makes a final decision to transfer an account to the new firm.

The Enforcement Section of the North American Securities Administrators Association (NASAA) compiled a list of financial products and practices that pose potential threats to retail investors.  The list includes persistent threats that have caused problems in the past, as well as new investor threats that have recently surfaced.

New Investor Threats

Each year, investors are targeted by new investment scams in an attempt by scammers to dupe unsuspecting investors out of their hard earned money.  In 2012, many types of fraud grew in prominence including the following:

• Crowd funding and Internet Offers
• Inappropriate Investment Advisor Advice
• Masking Fraud with Self-Directed IRAs
• EB-5 Investment-for-Visa Schemes

Elderly or disabled veterans should be alert when a financial planner recommends the purchase of an insurance annuity as part of a strategy to qualify for a pension benefit from the U.S. Department of Veterans Affairs.  According to an October Consumer Alert from the National Association of Insurance Commissioners (“NAIC”), some planners are placing senior veterans in unsuitable annuities or failing to warn veterans of potential drawbacks.

The VA Pension Program is a needs-based government program intended to provide an income benefit to low-income elderly or disabled wartime veterans.  To qualify, a veteran must be disabled or at least 65 years old, and must have an annual income below the prescribed maximum.  (Currently, the maximum yearly income for a veteran without dependents to qualify for a pension is $12,256.)  The VA may also deny benefits if the veteran’s net worth is “excessive.”