The Expungement Process

 

Removing, or “expunging,” customer disputes is an extensive process.  To start the process, an advisor must file a statement of claim with FINRA. 

The expungement process addresses multiple rules under FINRA.  The primary rules include 2080, 12805, 13805, 1122, and 2010. These include the financial advisor’s obligations to disclose fully and honestly.

Within Rule 2080, the claim must fall within one of three categories in order to qualify for expungement. Those categories are:

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

The first step in the process is filing a Statement of Claim (SOC). After the SOC is filed, FINRA will assign either one or three arbitrators depending upon the claim. The arbitrator will then set an Initial Prehearing Conference (IPHC). The IPHC will set out any upcoming deadlines and obligations for the eventual hearing. 

When all of the deadlines and document obligations are met, the final hearing will be scheduled. During the final hearing,  the arbitrator(s) will determine if a customer dispute can and will be expunged.

If the arbitrator determines that it should be expunged, the final step is to take the FINRA expungement award and file it in court to confirm the award. After that procedural step, it then gets re-filed back with FINRA to remove it from the U4, CRD, and Brokercheck.

This process can only be done once, so if it is filed and unsuccessful, it cannot be pursued again. Our experience with these enables us to take the best approach possible to ensure the highest chances of success.

If you are an advisor and have questions about this process or if you know of someone who might have questions, please contact us and we would be happy to provide you with more information.