We Win FINRA Expungement Cases

We understand that the expungement request process is onerous and complicated. But we also know that many customer complaints that wind up on BrokerCheck are meritless. For over a decade, our firm has won 97% of the expungement cases we take.

We believe reputation is everything. Financial advisors who are serious about their reputations require serious, experienced counsel.

The FINRA expungement rules are changing. Soon, it will be even more difficult to remove meritless disclosures from BrokerCheck. Act now!

CONTACT US TO ASSESS YOUR EXPUNGEMENT CASE

Overview

FINRA expungement is a process where a broker or financial advisor seeks to remove a customer complaint from their publicly-available BrokerCheck record. To accomplish this, the broker must formal request expungement.

Firms must report all written customer complaints under FINRA rule 4530. When a client makes a formal grievance against a broker or financial advisor, the details of the complaint, along with any settlement of underlying customer arbitration awards, are recorded in the broker’s CRD (Central Registration Depository) record through filing the U4 Form and/or Form U5. FINRA maintains the central registration depository CRD.

FINRA rule 2080 provides a mechanism for brokers to seek expungement relief of customer complaint information if the financial advisor can prove certain criteria.

This primer covers the process beginning with how client disputes wind up on BrokerCheck (and the central registration depository, formally requesting expungement, to confirming an award that grants expungement relief in a court of competent jurisdiction.

What is BrokerCheck?

BrokerCheck is an online, free, publicly-available database that Main Street investors can use to check, among other things, a financial advisor’s history of customer complaints. The central registration depository populates the information on BrokerCheck (our BrokerCheck “How-to” Guide,which explains how to use this online tool).

How do Investor Grievances Wind Up on BrokerCheck?

By rule, brokerage firms must report client grievances that “involve” one of its current or former brokers to FINRA CRD. FINRA maintains an extremely broad definition of what constitutes a customer complaint that a brokerage firm must report (some argue FINRA’s interpretation of what constitutes a reportable customer grievance is too broad).

For more information on how information gets reported on BrokerCheck vis a vis central registration depository “CRD,” read our page on rule 4530.

What Types of Customer Grievances Appear on BrokerCheck?

There are two overarching categories of investor accusations that appear on BrokerCheck. Brokers ought to understand these categories because they can impact the likelihood of success in a formal action to remove a client complaint from their CRD record.

Category 1- Formal Client Complaints that Trigger FINRA Arbitration Proceedings.

When a customer initiates a FINRA customer arbitration claim that alleges securities-related misconduct, the misconduct alleged almost always appears on the BrokerCheck record for the financial advisor who managed the complaining investor’s assets. Even if the statement of claim does not name financial advisor as a party to the lawsuit, FINRA rules still require the employing broker-dealer to report it.

Client grievances appearing on BrokerCheck triggered from formal FINRA customer arbitration lawsuits are often more credible than informal customer disputes described below. Here’s why: Investors who file FINRA customer arbitration claims are serious enough about their complaint to bear the expense of taking formal legal action against the broker and/or the brokerage firm. These customers also typically have legal counsel, which can result in more sophisticated claims.

Category 2- Informal Investor Disputes that DO NOT Trigger FINRA Arbitration Proceedings.

Informal client grievances are those that do not trigger FINRA customer arbitration proceedings. Any written expression of discontent that involves the purchase or sale of securities is an informal complaint. These accusations can come in many forms, including: emails, texts, letters, or even tweets. But they do not escalate to formal FINRA customer arbitration.

When are Investor Complaints “Ripe” for Expungement Relief?

“Ripeness” refers to when a broker may pursue seeking expungement.

Ripeness of Client Disputes that Trigger FINRA Arbitration

A financial advisor may request expungement of a customer complaint that triggers FINRA arbitration after one of either two overarching events (note that there are procedural nuances to attempting remove a complaint from a broker’s record. To better understand those nuances, brokers should seek the advice of competent counsel or, contact us.):

Event 1: Settlement

If the investor settles the FINRA arbitration, the broker may make an expungement request after settlement.

Event 2: At or during the FINRA Arbitration action that forms the basis for the dispute.

If the client protest goes to a formal arbitration hearing and does not settle, the financial advisor may make an expungement request as part of the underlying proceeding.

Ripeness of Informal Investor Grievances

Ripeness of informal client grievances can contain gray areas. But generally, a broker may make an request expungement of an informal customer dispute when either of the following events take place:

Event 1: Settlement

If the brokerage firm settles with the investor following an informal grievance, the broker may attempt to remove the complaint from their CRD record after the settlement is reached.

Event 2: After the Broker-dealer denies the complaint

Broker-dealers almost always have an internal review process for informal investor complaints. This process assesses the merits of the underlying complaint. If the firm concludes that the client complaint lacks merit, it will deny the complaint.

A financial advisors may make an expungement requests after the brokerage firm denies the complaint. But pursuing elimination of an investor complaint at this point contains a major caveat. After a firm denies a grievance, the client may still pursue their accusations formally through FINRA arbitration. Brokers ought to remain mindful of this possibility. And they should seek counsel or contact us to understand potential challenges of removing informal disputes from BrokerCheck records.

What are the Costs of Seeking Expungement?

FINRA charges a $1,575 filing fee for cases seeking expungement. Additionally, FINRA charges hearing session fees that can vary depending on the number of hearings held.

For more information about attorneys’ fees as a component of FINRA expungements costs, please contact us.

What Rules Apply to the Process?

FINRA has established several rules for the expungement request process. FINRA’s formal notices and guidance help shape these rules. The below graphic summarizes FINRA rule 2080, which governs the process. In short, a financial advisor who seeks to expungement customer dispute information must establish one of the standards identified in the graphic below.

FINRA Considers Expungement of Customer Dispute Information an “Extraordinary Remedy”

FINRA has provided notice to its arbitrators that they must consider expungement of customer dispute information an “extraordinary remedy.” In addition to the rule 2080 standards described above, arbitrators may only rule in favor of removing a complaint if doing so, “has no meaningful investor protection or regulatory value.”

Arbitrators are also trained to consider “the integrity of the CRD system” when evaluating these types of cases.

Bottom line: FINRA trains its arbitrators to not take requests to remove client issues from CRD records lightly.

Complaining Clients are Encouraged to Participate in the Expungement Process

FINRA encourages the investors who made the complaint that caused the BrokerCheck disclosure to participate in any formal attempt to remove it from a financial advisor’s record. Brokers must serve the complaining client and/or their counsel with notice of their attempt to remove a complaint they made. And provide the customer an opportunity to oppose it.

What is the Financial Advisor’s Burden of Proof when Requesting Expungement?

The financial advisor bears the burden of proving one of the standards described above to a panel of three arbitrators. Brokers must therefore understand what a “burden of proof” means generally; and what level of burden applies to a case that seeks removal of a complaint from their record.

What is a burden of proof?

The burden of proof is the obligation or responsibility placed on someone making a claim or assertion to provide evidence to support that claim.

Here are some commonly recognized levels of burden of proof:

1. Beyond a reasonable doubt: This is the highest level of burden of proof, commonly used in criminal trials.
2. Clear and convincing evidence: It requires evidence that is substantially more likely to be true than not true.
3. Preponderance of the evidence: It requires that the plaintiff show that it is more likely than not (i.e., over 50% probability) that their claims are true.
4. Probable cause: It requires that there be sufficient evidence to warrant a reasonable person’s belief that a crime has been committed.

What level of “burden of proof” must a broker satisfy in an expungement request?

FINRA does not designate a specific level of burden brokers must meet to justify a request to expunge customer dispute information. But based on FINRA’s notices, guidance, and recent efforts to change the rules to make removing customer complaints from BrokerCheck more difficult, brokers bear a heavy burden (akin, in our opinion, on “clear and convincing evidence.”

How does a FINRA Expungement Request Hearing Work?

There are several stages of the FINRA process leading up to the formal expungement hearing. These stages to expunge customer dispute information are summarized below:

Stage 1- Financial Advisors may Initiate Expungement Requests by filing the Statement of Claim

The expungement process begins when the broker initiates a claim that requests removal of an underlying investor issue from their record. The broker (typically through counsel) files a statement of claim, which initiates a FINRA arbitration proceeding. The statement of claim makes an expungement request of a specific customer grievance, which FINRA designates through an occurrence number.

Once the broker files the claim, FINRA processes the case as it would any arbitration under the Industry Code of Arbitration Procedure (as opposed to the Customer code, which covers arbitration procedure for investor claims).

After the claim is filed, the responding brokerage firm may file an Answer to the Statement of Claim.

Stage 2- The Parties Select Arbitrators

Through FINRA’s arbitrator selection process, the parties rank and strike potential arbitrators tasked with deciding the arbitration proceeding. These arbitrators have enhanced expungement training. FINRA’s enhanced expungement training applies specifically to cases that that request expungement relief.

The arbitrators review settlement documents of any underlying customer arbitration. And ensure that the broker is not seeking expungement of the same customer dispute information. By rule financial advisors must attest that their expungement requests do not seek expungement of the same customer dispute information from an earlier attempt.

FINRA arbitrations are compensated, but are not FINRA employees. But working as an arbitrator is one of many potential FINRA arbitration jobs available to motivated professionals.

Stage 3- The Parties Engage in Discovery

FINRA rules permit the broker to request documents and information from the responding broker-dealer necessary to prove her case. Relevant categories of documents can including include, but are not necessarily limited to: new account forms, monthly statements, contracts, correspondence, and account performance history relating to the customer.

Stage 4- Serving the Customer with Notice of Expungement Requests

Financial advisors must serve the investor who complained with notice of their intent to remove the dispute from their record. Generally, the broker and/or the broker’s counsel must supply the client with the statement of claim and the hearing date and time. The arbitrators may also require the broker to supply the customer with additional documents if the customer confirms intent to appear or participate.

Stage 5- Preparing Expungement Requests for the expungement hearing.

After the broker receives the documents necessary to prove their case, their counsel must prepare the case for arbitration.

What to Expect at a Formal Hearing concerning Expungement Requests

Hearings may be held in-person or virtually. Regardless of how the hearing is held, these matters follow a fairly consistent sequence of events, which can be broken down into 4 stages:

Stage 1- The Chairperson Opens the Hearing and Reads the FINRA Script

The hearing typically begins with the Chairperson reading a script that FINRA requires read to the parties. After the Chairperson reads the script, he or she then typically invites opening statements from the broker’s counsel.

Stage 2- Opening Statements

Because the broker bears the burden to prove the case, his opening statement usually comes first. After the opening statement, the Chairperson invites the respondent to make an opening statement (if they would like to make one). Often the broker-dealer respondent does not oppose expungement requests. If the respondent does not oppose the expungement request, they may decide to forego making an opening statement.

If the investor attends the hearing, the chairperson may also enable the investor or their counsel to make opening remarks as well.

Stage 3- Examination of Witnesses

After opening statements, the Chairperson generally asks the financial advisor’s counsel to begin calling witnesses. Both sides may then examine and/or cross-examine relevant witnesses and introduce relevant documents into evidence.

Stage 4- Closing Argument

After all witnesses have testified, the Chairperson may invite closing arguments from the parties or an opposing customer.

What Happens after the Hearing?

After the hearing the panel deliberates and either the arbitrators grant expungement relief of customer dispute information, or they deny it. If the award recommends expungement of customer dispute information, the FINRA rules require the arbitration pane to provide an explanation for the basis of their decision. If, on the other hand, the arbitration panel denies it, the arbitration panel does not have to provide any explanation.

Confirming a FINRA Arbitration Award that Recommends Expungement of customer dispute information

Importantly, if the arbitration panel recommends removal of the customer complaint from the broker’s record, the expungement process has not ended. Rule 2080 requires financial advisors who win cases requesting expungement to then confirm the award in a “court of competent jurisdiction.”

State and federal law provide a pathway to confirm, amend, or vacate any award. FINRA requires a court order confirming the award that grants expungement. A court proceeding is required to obtain this court order. FINRA then requires the party seeking expungement to supply it a copy of this court order. The court order and/or judgment represents the final piece of the process to seek expungement of customer disputes.

What does it mean to Confirm an Arbitration Award?

Similar to a verdict in court, arbitration awards bind the parties to the decision made in the award. But there are some circumstances where one or both parties may want to challenge the award. In these cases, they can seek to confirm, vacate, or amend the award.

Why does FINRA Require Court Confirmation of Expungement Awards?

FINRA requires parties to confirm arbitration awards that recommend expungement for two overarching reasons. First, FINRA takes expungement requests seriously because that can have significant consequences for the accuracy and completeness of a broker’s public record. Confirmation therefore helps ensure the accuracy of the information on a broker’s record.

Second, FINRA wants to ensure that the expungement recommendation is consistent with its rules and policies. FINRA has specific rules and procedures for expungement requests, and arbitration panels are required to follow these rules when making recommendations for expungement. Confirming the award allows FINRA to review the recommendation and ensure that it meets its requirements.

The Law Offices of Patrick R. Mahoney is a full service law firm with extensive experience handling FINRA expungement cases. This page is for information purposes only and does not constitute legal advice. If you would like to explore the possibility of pursuing removal of a customer complaint from your BrokerCheck record please contact us.