Why Wouldn’t my FINRA Expungement Go Through?

FINRA Rule 2080 allows FINRA-registered financial professionals (RFPs) or broker-dealer firms to expunge complaints lodged against them from the Central Registration Depository (CRD) system. CRD is a source of information accessible to the public through BrokerCheck. BrokerCheck is a unique and free tool that gives investors information involving regulatory actions, arbitrations and complaints, broker’s employment history, and investment-related licensing. But what happens in the event of a FINRA expungement failure? Many people come to us when they experience FINRA expungement issues, so, that’s what we are going to explore in this article.

FINRA Expungement Failure

FINRA requires compliance with specific rules for the expungement to be granted. In addition, in most cases, the broker or firm will need to obtain an order from a court of competent jurisdiction confirming the FINRA arbitration award granting the expungement. Rule 2080, which was established under close consultation with state securities regulators and the North American Securities Administrators Association (NASAA), provides that the broker or broker-dealer and RFPs with expungement issues should first acquire an order from a court of competent jurisdiction confirming an arbitration award with an expungement relief or directing an expungement relief.

If a court order directs the expungement or verifies the arbitration award directing expungement, your FINRA expungement will be completed, and your customer dispute information will be removed from the registration depository and no longer accessible to the public through BrokerCheck. The broker first needs to persuade a panel of arbitrators that the customer complaint sought to be expunged is false or erroneous, factually impossible, or that the broker was not involved in any misconduct related to the information.

While this process may seem straightforward, it may not be successful if you don’t meet all the specific requirements. You must provide FINRA with the following updated information to avoid FINRA expungement failure. This information enables the FINRA staff to process the requests efficiently:

• The correct CRD number of the RFP, broker, or broker-dealer requesting expungement
• The correct CRD occurrence number as the subject of the request
• The docket number and case name for the disclosure
• A brief explanation of whether an expungement request of the same disclosure has ever been made and the outcomes of the request, if any.

There are a few ways to ensure that you do not experience a FINRA expungement failure. To ensure the likelihood of success and quick processing, some brokers and RFPs may seek expungement in a direct-to-court expungement case rather than a straight-in request in Dispute Resolution System (DRS) arbitration forum. In this case, the broker requests the court to examine the fact and relevance of the customer dispute information disclosure and order its expungement from the CRD system.

This way, the involved parties will likely receive quick notice of their request because the court is not bound by the FINRA rules relating to expungement. While arbitrators handling the expungement issues have relevant training on the importance of the process, the judges may or may not be experts in areas related to FINRA, the security markets, the state securities regulators, or the significance of the CRD system when dconsidering their decision. 

When the court issues an expungement order, FINRA evaluates the circumstances alleged in the case and may oppose it if:

• You or your broker were previously found culpable to the customer.
• The only basis for the expungement request is the customer’s age complaint.
• A prior arbitration panel or fact-finder declined the expungement request.
• The basis for the expungement request is that the firm dismissed the customer’s complaint.
• You or the broker seek expungement of a customer complaint that was the main subject of an arbitration award dismissing expungement vacated without notifying FINRA or giving it the opportunity to respond.
• The fact provided in the case doesn’t establish that the complaint meets the FINRA Rule 2080 standards.
• The case requires expunging a disclosure that was a part of regulatory action.
• You or the broker invoke the equitable authority of the court to seek expungement.

FINRA also updates NASAA on all direct-to-court expungement orders and gives its scrutiny of the circumstances. NASAA and concerned state securities regulators conduct their independent analysis of the orders to determine the state’s position and may intervene to oppose it. If you experienced a FINRA expungement failure, then you likely need more experienced assistance. If you’ve already received an adverse award from an arbitration panel, you have a very limited period of time to move to vacate the arbitration award. As a broker, if you have received a complaint and would like it cleared quickly and successfully, it is prudent to engage an experienced FINRA expungement attorney. At Scarinci Hollenbeck, LLC, we have highly experienced attorneys who deliver creative and practical solutions to ensure the success of your complaints. Contact us today at (201) 896-4100 or email info@sh-law.com for a complimentary consultation and FINRA arbitration.