Expungement of FINRA Records After Investigation

Expungement of FINRA Records After Investigation: Why the Window Is Closing and What You Can Still Do

Welcome to Spodek Law Group. 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.

Todd Spodek 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.

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.

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

Heres the irony that makes the timing so cruel: the brokers who needed expungement most urgently – those with the oldest complaints, the longest-standing damage to there records – are the ones most likely to have missed the window for the easier process.

The 2023 reforms apply to complaints based on when you file for expungement, not when the complaint originated. A customer complaint from 2018 thats been damaging your career for six years? If you didnt file for expungement before October 2023, you’re fighting under the new rules. The complaint hasnt changed. The facts havent changed. But your odds of success dropped dramatically becuase you waited.

And the reforms impose hard deadlines that make this worse. You have two years after the close of customer arbitration or litigation to file for expungement. If the complaint never evolved into formal proceedings, you have three years from when it was initialy reported to CRD. Miss either deadline by a single day? Your right to seek expungement is gone permanantly, regardless of how false or damaging the complaint is.

Think about the broker who couldnt afford expungement in 2019 when the complaint first appeared. They were building savings, waiting for there financial situation to improve. Then 2023 reforms hit. Then there three-year deadline passed. Now there stuck with a complaint they might have easily expunged under the old rules, but can never expunge under any rules becuase the window closed.

The cruelty of this timing isnt theoretical – its happening right now to brokers across the industry. Complaints from 2020 and 2021 are hitting there three-year deadlines. Every month that passes closes the window for more brokers who thought they had time. And unlike the pre-reform era, were waiting often didnt matter becuase success was nearly certain, every delay under the new rules compounds the risk. You wait longer, your deadline approaches faster, and your odds of success are lower when you finaly file.

One Shot, Forever

This is the aspect of the expungement system that defense attorneys lose sleep over. FINRA Rule 2080 creates a true one-shot rule for expungement.

If an arbitration panel denies your expungement request, you cannot file another request for the same complaint. The denial is permanant. If a court refuses to confirm an arbitration award that granted expungement, same result – permanant denial. There is no appeal process that gives you a second chance. There is no “fix it and try again.” You get one opportunity to present your case, and if you lose, the complaint remains on your record forever.

This creates an impossible tension between filing to early and filing to late. File before your ready – before you’ve gathered all evidence, before you’ve prepared your best case – and you risk losing on a technicality that closes the door permanantly. But wait to long trying to perfect your case, and the deadline closes before you can file at all.

Heres the mathematical reality: under the old rules, rushing to file made sense becuase success was nearly guarenteed. Under the new rules, preparation matters enormously becuase failure is permanant. But the deadlines havent changed. You still have the same two or three year window. Whats changed is that you need significantley more preparation to win, but have exactley the same amount of time to prepare.

The Three Grounds and Nothing Else

FINRA expungement requires you to establish one of exactley three things. Not close to one of them. Not arguably related to one of them. Exactley one of them:

One: The claim, allegation, or information is factually impossible or clearly erroneous. “Factually impossible” means it literaly could not have happened – you were in a different country when the alleged misconduct occurred, the product at issue wasnt available during the relevant period, something along those lines. “Clearly erroneous” is slightly broader but still narrow – a demonstrable mistake of fact that can be proven wrong.

Two: The claim, allegation, or information is false. This sounds similar to “clearly erroneous” but requires proving falsity specificaly rather then mere error. The distinction matters when arbitrators are applying the standards strictley, which they now are.

Three: The associated person was not involved in the alleged misconduct. You werent the broker on the account. You didnt make the recommendation. You had no role in whatever transaction generated the complaint. Complete non-involvement, not reduced involvement.

Notice what isnt on this list: “The complaint was resolved in my favor.” “The customer withdrew the complaint.” “The complaint was investigated and no action was taken.” “The complaint is unfair.” None of these are grounds for expungement. A complaint you won can stay on your record. A complaint that was withdrawn can stay on your record. A complaint that any reasonable person would recognize as meritless can stay on your record – unless you can prove it fits one of the three narrow grounds.

This is were experianced counsel makes the critical difference. The grounds are narrow, but they can be established with the right evidence and the right presentation. “Clearly erroneous” can encompass situations were documentary evidence directly contradicts the customer’s claims. “Not involved” can include situations were the broker’s role was fundamentaly different from what the complaint alleges. The grounds are technical, but there not impossible – if you understand exactley what arbitrators are looking for and how to give it to them.

What separates successful expungement petitions from failed ones under the new rules? Usualy its the quality of the evidentiary presentation, not the underlying facts. Arbitrators want to see documents that prove your position – not argue it, prove it. They want testimony that addresses the specific ground your claiming. They want a narrative that fits cleanley into one of the three authorized categories. Cases fail when brokers treat expungement like a general fairness appeal rather then a technical legal proceeding with specific requirements.

The Mathematics of Waiting

Traditional thinking says you should wait until your case is perfect before filing for expungement. Gather every document. Interview every witness. Build an overwhelming record. Then file.

Under the new rules, this thinking will destroy you.

Heres why: the deadlines are absolute. Two years after arbitration closes. Three years after the complaint hits CRD. These arent soft guidelines. There hard cutoffs enforced by FINRA’s administrative process. Miss them and you’re done.

But the new rules also mean you need more preparation, not less. Unanimous panel agreement requires convincing three skeptical arbitrators, not one sympathetic one. Enhanced arbitrator training means there looking for reasons to deny, not reasons to grant. Detailed written explanations requirement means arbitrators have to justify grants but can deny without the same scrutiny.

So you need more preparation in the same amount of time. The mathematics favor immediate action – starting the preparation process now, even if you dont file immedialtely. Gather evidence while its still available. Document your case while witnesses still remember. Build your file continuousely rather then waiting for the “right moment” that may never come.

Spodek Law Group sees this constantly: brokers who waited becuase they thought they had time, only to discover there deadline was closer then they realized. The complaint they assumed they could expunge “eventually” is now permanant becuase “eventually” arrived before they were ready.

What Expungement Actually Requires

If your considering expungement under the current rules, heres what the process actualy involves.

First, you file a Statement of Claim initiating the arbitration. This goes to FINRA Dispute Resolution Services. The claim must identify the specific complaint you want expunged, the grounds you’re claiming, and the evidence supporting your position.

Second, FINRA selects your three-person panel from the Special Arbitrator Roster. You have no input on this selection in straight-in cases. The arbitrators receive your filing and any response from your former firm.

Third, there a hearing. You present your evidence. Your former firm may or may not participate – many dont, which sounds favorable but actualy isnt becuase it means no one is stipulating to facts that would help your case. The arbitrators ask questions, evaluate credibility, review documents.

Fourth, the panel deliberates. All three must agree that you’ve established one of the narrow grounds. If they cant reach unanimity, your request is denied. Period.

Fifth, assuming you win, you need court confirmation. FINRA’s expungement rules require that a court of competent jurisdiction confirm the arbitration award before FINRA will actualy expunge the record. This means another filing, another proceeding, another opportunity for something to go wrong.

The timeline from filing to actual expungement? Typicaly 12-18 months under favorable conditions. Longer if the firm contests, if the arbitration is delayed, or if court confirmation takes additional time.

And throughout this process, the complaint remains visible on BrokerCheck. Potential employers still see it. Clients still find it. The damage continues accumulating while you fight to remove it. Expungement isnt retroactive – it dosent undo the harm that occured while the complaint was visible. It only stops future harm. Every month the process takes is another month of career damage you cant recover.

The costs are substantial as well. Legal fees for a contested expungement under the new rules typicaly run $15,000 to $30,000 for relatively straightforward cases. Complex cases with extensive document production, multiple hearing days, or firm opposition can run significantley higher. FINRA filing fees add several thousand more. Court confirmation adds additional attorney time. Your looking at a total investment of $20,000 to $50,000 or more – with no guarentee of success. For many brokers, especialy those early in there careers, these numbers represent a genuine barrier to seeking relief they may deserve.

The Stakes Are Permanent

Your CRD record follows you everywhere in the securities industry. Every potential employer searches it. Every compliance department reviews it. Every client who does basic due diligence finds it. A complaint that stays on your record dosent just affect your next job search – it affects every job search for the rest of your career.

For formerly registered persons who leave the industry, records remain visible for ten years. For persons subject to disciplinary actions or certain disclosure events, records remain visible permanantly. “Permanent” in this context means exactly what it sounds like: forever. No sunset provision. No automatic removal. The complaint that appeared on your record in 2015 will still be there in 2045 if you dont expunge it.

This is why the new expungement rules matter so much. Under the old system, most brokers could clear there records eventually. Under the new system, most attempts may fail – and those failures are themselves permanant. Youre not just risking continued damage; your risking a formal denial that eliminates any future chance of relief.

The permanence cuts both ways, though. If you succeed under the new rules – if you convince all three arbitrators, get court confirmation, and actualy expunge the complaint – your record is genuinley clean. Not “clean with an asterisk.” Not “clean but we can tell something used to be there.” Actualy clean. The complaint disappears from BrokerCheck completley. Future employers searching your name will find nothing. Clients performing due diligence will see an unblemished record. The investment in successful expungement pays dividends for the rest of your career. But you only get one chance to make it happen.

Spodek Law Group represents brokers navigating this transformed landscape. We understand that expungement under the new rules requires a level of preparation and strategy that the old system never demanded. We understand that the stakes – permanant record damage versus permanant clean slate – justify the investment in doing this correctly.

If you have customer complaints, termination disclosures, or investigation records damaging your career, the time to evaluate expungement is now – before more deadlines close, before the window narrows further, before the one shot you have is gone forever. Call 212-300-5196 for a confidential consultation about your expungement options under the current rules.