Wait Just a Minute: FINRA Loosens the Screws on Proposed Expungement Restrictions

Brokers seeking to expunge customer complaints from their records can sleep a bit easier. Richard Berry, head of FINRA’s Office of Dispute Resolution (ODR), stated last week that FINRA intends to tweak some restrictions that it had previously proposed on brokers’ abilities to seek expungement of customer complaints.

Notably, in late 2017 FINRA proposed a number of changes to the expungement process, including:

  • Requiring associated persons who are named parties to request expungement during the pendency of the case
  • Requiring the associated person to appear at the expungement hearing
  • For cases that settled, mandating a one-year limitation period for an associated person to file for expungement
  • Establishing a panel of expungement-specific arbitrators
  • Requiring a three-member panel of arbitrators to:
    • (a) Unanimously grant expungement pursuant to the grounds specified in FINRA Rule 2080(b)(1)
    • (b) Find the customer dispute information has no investor protection or regulatory value
  • Setting a minimum filing fee of $1,425 for expungement requests.

Faced with complaints, FINRA announced it will roll back some of its proposals:

  • Instead of a one-year limitation, there will be a two-year limitation to file an expungement request for matters that are settled.
  • A decision by a simple majority of arbitrators — just as in customer cases — will be sufficient to grant expungement.
  • The arbitrators will not have to find that the customer dispute information has no regulatory or investor protection value.

FINRA’s revisions were meant to balance its goal of investor protection with the concerns about the proposed restrictions it received from brokers and lawyers. Nevertheless, brokers be forewarned: it is clear even with FINRA’s modifications of its initial proposal that the expungement process — which has for years been subject to heightened scrutiny — will now be even more scrutinized.

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About the Author: Sandra D. Grannum

Sandra Dawn Grannum concentrates her practice on securities, broker/dealer arbitration, litigation, mediation and regulatory defense. She is co-chair of the Commercial Litigation Team.

Sandy has tried complex multimillion-dollar arbitrations before FINRA, AAA and JAMS across the country. She has represented brokerage firms, banks, clearing firms, and associated persons in over 60 arbitrations before the NASD and FINRA which have been tried through award. In addition, she has successfully pursued cases in state and federal courts and in adversarial proceedings before bankruptcy courts.

About the Author: Edward J. Scarillo

About the Author: Jamie L. Helman

Jamie L. Helman concentrates her practice on securities, broker-dealer arbitration, litigation, mediation, employment matters, and regulatory defense. She has experience first-chairing FINRA arbitrations, defended on-the-record testimony of broker-dealer employees before FINRA, and is presently involved in the representation of broker-dealers in several pending FINRA cases as well as regulatory matters.

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