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Edwin E. Lickiss v. Financial Industry Regulatory Authority

August 23, 2012


Trial Court: Contra Costa County Superior Court Trial Judge: Hon. Judith S. Craddick Super. Ct. No. N11-0457)

The opinion of the court was delivered by: Reardon, J.


(Contra Costa County

Appellant Edwin E. "Mike" Lickiss filed a petition in state court seeking to expunge his public securities brokerage records held within the central registration depository database (CRD) maintained by respondent Financial Industry Regulatory Authority (FINRA). In that petition Lickiss cited the court's jurisdiction under FINRA rule 2080(a) (rule 2080),*fn1 as well as the court's equitable and inherent power to effect expungements. Sustaining FINRA's demurrer without leave to amend and dismissing the matter, the trial court adopted the standard set forth in rule 2080(b)(1) to evaluate the petition and concluded Lickiss did not and could not plead any basis for relief under that rule.

By adopting the narrow legal criteria of rule 2080(b) as the tool for evaluating Lickiss's pleadings, to the exclusion of any consideration of equitable principles, the court failed to rule on Lickiss's claim for equitable relief. Although imperfect, that claim was not fatally uncertain. Accordingly, we reverse and remand for further proceedings.



FINRA*fn2 is a " 'self-regulatory organization' " as defined in the Securities and Exchange Act that oversees the conduct of securities brokers and brokerage firms. (15 U.S.C. §§ 78c(a)(26), 78s(b); Sacks v. S.E.C., supra, 648 F.3d at p. 948.) "It is 'responsible for regulatory oversight of all securities firms that do business with the public; professional training, testing and licensing of registered persons; [and] arbitration and mediation. . . .' [Citation.]" (Ibid.)

One of FINRA's duties under the Securities and Exchange Act is to "establish and maintain a system for collecting and retaining registration information," including "information reported in connection with the registration or licensing of brokers and dealers and their associated persons, including disciplinary actions, regulatory, judicial and arbitration proceedings . . . ." (15 U.S.C. § 78o-3(i)(1)(A) & (i)(5).) FINRA maintains these records in the electronic CRD database it developed in concert with the state security commissions. (See Meyers v. NASD, Inc. (E.D.Mich. Mar. 29, 1996) No. 95-CV-75077, 1996 WL 1742619 *1.) All broker/dealers registered with the Securities and Exchange Commission (SEC) must file their registration forms through the CRD system, along with the registration forms for their associated persons. (NASD Notice to Members 01-65 - Request for Comment (Oct. 2001), at p. 564.) These forms require reporting of administrative information on registered members as well as disclosure information, including information relating to customer complaints, arbitration claims and awards, and court filings by customers. (Ibid.)

FINRA has established BrokerCheck, an online application through which the public may obtain information on the background, business practices and conduct of FINRA member firms and their representatives. Through BrokerCheck, FINRA releases to the public certain information maintained on the CRD, thereby enabling investors to make informed decisions about individuals and firms with which they may wish to conduct business. This data includes historic customer complaints and information about investment-related, consumer-initiated litigation or arbitration. (FINRA Regulatory Notice 10-34, July 2010; Securities and Exchange Com., Release No. 34-62476, July 8, 2010.)

As part of its regulatory oversight function, FINRA is empowered to promulgate rules, which the SEC, in turn, must approve. (15 U.S.C. § 78s(b)(1).) Rule 2080 is one such rule, initially proposed under FINRA's predecessor, the NASD. After giving notice, receiving numerous comments and two amendments to the proposed rule, the SEC considered and approved it, finding that the rule was "designed to promote just and equitable principles of trade, and, in general, to protect investors and the public interest." (68 Fed.Reg. 74667-01, 74671 (Dec. 24, 2003).) Further, the rule allowed "fact finders and the NASD to consider all competing interests before directing or granting expungement of customer dispute information from the CRD." (Ibid.)

Noting that certain commenters asserted that the standards under which the regulatory body could waive participation in the court confirmation process should be applied to arbitrators through the Code of Arbitration Procedure and to NASD members seeking expungement, the SEC stated it agreed with NASD that the standards would be most effectively applied at the waiver juncture. Further, the SEC noted NASD's position on these matters, namely that "arbitrators will be aware of the standards that will be utilized with respect to the NASD's waiver of involvement, and, thus, arbitrators will indirectly consider them [when deciding an arbitration case]. . . . [Additionally,] the standards should not be applied to members directly, because federal and state courts are more than able to make the proper decisions with respect to arbitration award confirmation." (68 Fed.Reg., supra, 74667-01, 74671.) As well, the SEC expressed its belief that "the potential involvement of the NASD at the court confirmation level will provide greater safeguards than simple application of the rule to members." (Ibid.) Finally, the SEC stated its view that "the proposal strikes the appropriate balance between permitting members and associated persons to remove information from the CRD system that holds no regulatory value, while at the same time preserving information on the CRD system that is valuable to investors and regulators." (Id. at 74672.)

B. Lickiss's BrokerCheck Report and Declaration

The FINRA BrokerCheck report on Lickiss shows 17 past customer complaints, as well as a regulatory action, filed between 1991 through 1996. According to a summary of the arbitration claims and regulatory action Lickiss provided with his moving papers, the sale of stock in Commonwealth Equity Trust (CET) was specifically named in disclosures of 13 of the 17 customer complaints. Lickiss has declared that aside from the CET customer complaints, the only other blemish on his CRD report concerned one client settlement he made after the client sustained a loss on a promissory note sold to the client by Lickiss's partner. He agreed to reimburse the client for his loss under ...

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