Expungement of FINRA Records After Investigation

Welcome to Federal Lawyers. If you have damaging information on your FINRA record – a customer complaint, a termination disclosure, an investigation that went nowhere but still sits on BrokerCheck for the world to see – you need to understand something that most brokers don’t realize until it’s too late. The rules for expunging that information changed dramatically in October 2023. And not in your favor.

Here’s what makes the current situation so troubling: For years, brokers won over 90% of expungement cases. That number has dropped to roughly 66% under the new rules. But that’s not even the real problem. The real problem is that if you missed the deadline to file under the OLD rules, you’re now stuck fighting under the NEW rules – rules specifically designed to make expungement harder to obtain. The brokers who cleared their records before October 2023 got the easy path. Everyone else is facing a fundamentally different system.

our lead attorney has represented securities professionals through FINRA expungement proceedings for years. The shift he’s witnessed since the 2023 reforms isn’t subtle. Arbitrators who once granted routine expungement requests are now denying them. Cases that would have succeeded 18 months ago are failing today. And because of the one-shot rule – file once, lose once, and you can never try again for that same complaint – the stakes have never been higher.

The System That Worked Too Well

Before we talk about what to do now, you need to understand why the rules changed. FINRA expungement was always supposed to be difficult. The official grounds for relief are narrow: the claim must be factually impossible, clearly erroneous, or false, or the broker must not have been involved in the alleged misconduct. These sound like high bars. In practice, they weren’t.

Heres what actualy happened for years: brokers filed expungement requests, often as part of settlement agreements with customers. Arbitrators – frequently single arbitrators rather then panels – granted relief in the vast majority of cases. Studies showed success rates between 87% and 90%. One firm publicly claimed 1,725 expungement cases with success in the “upper 80%” range. Investor advocates complained repeatedly that the system was rubber-stamping expungement requests.

Think about what those numbers mean. If 90% of customer complaints are being expunged as “false” or “clearly erroneous,” either customers are filing overwhelmingly meritless complaints – or the system wasnt actualy applying the standards it claimed to apply. FINRA eventualy concluded the latter. There response was the October 2023 reforms.

OK so heres were this gets particulary relevant to your situation: the reforms didnt just change the rules. They changed who applies the rules and how strictley. The same facts that would have won expungement in 2022 might lose in 2024 – not becuase your case is weaker, but becuase the people deciding it are different.

The numbers tell the story plainly. Expungement requests filed at FINRA dropped 80% after the reforms took effect. Thats not becuase 80% fewer brokers have complaints worth expunging. Its becuase brokers and there attorneys looked at the new rules, calculated the odds, and concluded the expected value no longer justified the costs. The system didnt just get harder – it got hard enough that rational actors are choosing not to even try.

What October 2023 Actually Changed

The 2023 rule changes transformed expungement from a relatively straightforward process to an adversarial gauntlet. Heres whats different:

First, every expungement case now requires a three-member panel. Previously, single arbitrators could decide straight-in expungement requests. Single arbitrators are generaly faster, cheaper, and – critics argued – more likely to grant relief. Three arbitrators means three people who all have to agree your case merits expungement.

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Second, that agreement must be unanimous. All three arbitrators must find that you’ve established one of the narrow grounds for relief. A 2-1 decision in your favor isnt enough. One dissenting arbitrator kills your case – and becuase of the one-shot rule, kills it forever.

Legal Scenario: What Would You Do?

Scenario

You have an old conviction affecting your job prospects.

Can it be expunged?

Attorney's Answer

Many NJ convictions are expungable after waiting periods. Expungement legally allows you to deny the arrest or conviction. The process requires filing a petition with the court and demonstrating rehabilitation.

This is general information only. Contact us for advice specific to your situation.

Third, FINRA created a Special Arbitrator Roster specificaly for expungement cases. These arent random arbitrators. There public arbitrators who’ve received enhanced training on expungement – training that, according to FINRA, emphasizes the narrow grounds for relief and the importance of investor protection. Industry arbitrators are completley excluded. You cant rank or strike arbitrators in straight-in requests. You get whoever FINRA assigns.

Fourth – and this is the part most brokers miss until its to late – state securities regulators are now notified of every expungement request. This means your expungement proceeding isnt private. State regulators can monitor the case, receive copies of the award, and potentialy take there own action based on what they learn. The quiet resolution that once characterized expungement is gone.

The Grandfathering Trap