Articles Posted in FINRA

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Many professionals – especially those that work in the finance industry – are unpleasantly surprised when records of a prior case they believed to be sealed pursuant to an ACD have been discovered by prospective employers who conduct background checks. This is often accompanied by embarrassing and/or devastating consequences. How can this happen if the case was “sealed,” and what, if anything, can be done?

First, some background: When you are arrested for any state crime (such as misdemeanor shoplifting, theft of services, assault, or possession of drugs), you get fingerprinted by the police, which creates an “arrest event” in the system. If this is your first time being arrested, it also creates a New York State ID number (“NYSID”) which is associated with your fingerprints (some individuals who work in sensitive industries like law enforcement, finance/securities, and teaching may have already been issued a NYSID for certification). The arrest event not only contains your fingerprints, but also some details about your case – namely, the date, time, precinct of arrest, and the criminal charge(s) as designated by the arresting officer. The arrest event is then simultaneously sent to both the Division of Criminal Justice Services (the New York state agency responsible for the maintenance of criminal records) and the Federal Bureau of Investigations, which maintains a database of criminal records from across the country called the “Interstate Identification Index.”

An ACD (adjournment in contemplation of dismissal, as described by New York Criminal Procedure Law Sections 170.50 and 170.55) is typically a great result for a criminal defendant; all the defendant has to do is stay out of trouble for a measure of time and possibly perform some community service, then the case is dismissed and sealed pursuant to CPL Section 160.55. The problem is that the authority for this sealing provision is found in state law, and does not govern the conduct of the Federal Bureau of Investigation, which maintains its own database of criminal records. Thus, when the state agency updates its records after ACD dismissal, there is no guarantee that the federal database will also be updated to reflect the sealing of the case. Certain individuals (like FINRA professionals) are screened by employment checks against this federal database, to which FINRA has access. Thus, unless affirmative steps are taken to ensure that the FBI database is updated to reflect the dismissal and sealing of the state law charges, there is no reason to have any confidence that a background check of a FINRA professional will be “safe” for a professional that has received an ACD.

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Zachary H. Johnson of The Law Office of Matthew Galluzzo successfully represented Eric Butler in a FINRA arbitration against Morgan Stanley involving a dispute over signing bonuses paid to Mr. Butler when he joined Morgan Stanley. The case resulted in a win for Butler — he was allowed to keep his signing bonus. Johnson worked closely with of counsel Seth B. Chandler in securing the victory after a full-blown evidentiary hearing at FINRA's lower Manhattan offices.

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