What is FINRA arbitration?

FINRA arbitration is a method of resolving disputes between investors and brokerage firms or financial advisors outside the court system. It involves a neutral third party, an arbitrator, who reviews the case and makes a binding decision.

Why choose arbitration over litigation?

Arbitration is typically faster, less formal, and more cost-effective than litigation. It also provides a final resolution to disputes, with limited grounds for appeal. Most relationships with financial advisors are formalized by entering into a contract which contains a dispute resolution clause. Nationally, most dispute resolution clauses provide for FINRA arbitration.

Who can file a FINRA arbitration claim?

Investors, brokerage firms, and financial advisors can file a FINRA arbitration claim if they have a dispute related to securities or investment activities. FINRA arbitration is normally the forum for disputes among registered persons, brokerage firms and the public customer clients of the firms.

How do I start the FINRA arbitration process?

To start the arbitration process, Bakhtiari & Harrison will file a Statement of Claim with FINRA, detailing the nature of the dispute, the parties involved, and the relief sought.

What is a Statement of Claim?

A Statement of Claim is a written document submitted by the claimant outlining the facts of the dispute, legal claims, and the desired outcome.

What happens after filing the Statement of Claim?

After filing, the respondent has 45 days to answer the Statement of Claim. The answer must address the claims and may include counterclaims or other relief sought.

What fees are involved in FINRA arbitration?

Fees include filing fees, hearing session fees, and possibly member surcharges or process fees, depending on the specifics of the case.

Can I represent myself in FINRA arbitration?

Yes, you can represent yourself, but many choose to hire an attorney with experience in securities arbitration due to the complexity of the process. Investors and industry professionals who choose to represent themselves do so at a substantial disadvantage, Wall Street firms typically retain experienced professional counsel to represent their interests.

How are arbitrators selected?

Arbitrators are selected through the Neutral List Selection System (NLSS), which provides a list of potential arbitrators. Both parties rank and strike names to agree on a panel.

What qualifications do FINRA arbitrators have?

FINRA arbitrators include attorneys, accountants, financial professionals, and public members who have undergone training and meet FINRA’s qualification standards.

How long does the arbitration process take?

The process typically takes 12-18 months from filing to the final award, but this can vary based on case complexity and scheduling. Preference may be given to investors that are seriously ill or elderly.

What is a prehearing conference?

A prehearing conference is a meeting between the parties and the arbitrators to discuss procedural issues, set a schedule, and address preliminary matters including final FINRA arbitration hearing dates.

What is discovery in arbitration?

Discovery is the exchange of documents and information between the parties to prepare for the hearing. It is more limited than in litigation.

What happens during the arbitration hearing?

During the hearing, both sides present evidence, call witnesses, and make arguments. The arbitrators then deliberate and render a decision.

Is the arbitration hearing open to the public?

No, arbitration hearings are private and confidential. Only the parties, their representatives, and the arbitrators may attend.

Can I settle my case before the hearing?

Yes, parties can settle at any time before the arbitrators render a decision, often through negotiation or mediation.

What is mediation in the context of FINRA arbitration?

Mediation is a voluntary process where a neutral mediator helps the parties negotiate a settlement. It is separate from arbitration and non-binding.

What happens if I lose in arbitration?

If you lose, the arbitrator’s decision is final and binding. There are limited grounds for challenging the award in court.

Can I appeal an arbitration decision?

Generally, you cannot appeal an arbitration decision. However, you can seek to vacate the award on very narrow grounds, such as arbitrator misconduct.

What types of disputes are resolved through FINRA arbitration?

Disputes include claims of fraud, breach of fiduciary duty, negligence, breach of contract, and other issues related to securities and investments.

How are damages determined in arbitration?

Damages are determined based on the evidence presented, including financial records, expert testimony, and the specifics of the case.

Can arbitrators award attorney’s fees?

Arbitrators can award attorney’s fees if provided for by law, contract, or if both parties request it.

How do I enforce an arbitration award?

An arbitration award can be enforced in court through a confirmation process, making it a judgment that can be collected.

What is expungement in FINRA arbitration?

Expungement is the process of removing information from a broker’s record on the Central Registration Depository (CRD) system. It is only granted under specific conditions.

What are the grounds for vacating an arbitration award?

Grounds for vacating an award include arbitrator bias, fraud, corruption, or misconduct, as well as exceeding their powers.

Are arbitration awards public?

Yes, arbitration awards are published on FINRA’s website, providing transparency and access to past decisions.

What is the role of the Office of Dispute Resolution?

The Office of Dispute Resolution administers arbitration and mediation cases, ensuring that the process runs smoothly and efficiently.

What is a Simplified Arbitration?

Simplified Arbitration is for cases involving claims of $50,000 or less, allowing for a quicker and less expensive resolution without a hearing.

Can I request an expedited hearing?

Yes, in certain circumstances, such as elderly or seriously ill parties, you can request an expedited hearing.

What is the role of an arbitrator?

An arbitrator acts as a neutral decision-maker, reviewing evidence, hearing testimony, and issuing a binding decision on the dispute.

How do I prepare for an arbitration hearing?

Preparation involves gathering evidence, preparing witnesses, and developing a clear case strategy to present to the arbitrators.

What types of evidence are admissible in arbitration?

Evidence can include documents, emails, financial records, expert reports, and witness testimony, subject to the arbitrators’ discretion.

Can I request documents from the other party?

Yes, through the discovery process, you can request relevant documents and information from the other party to support your case.

How does FINRA handle conflicts of interest with arbitrators?

FINRA requires arbitrators to disclose any potential conflicts of interest, and parties can object to arbitrators they believe are biased.

What happens if a party does not comply with discovery?

If a party does not comply, the other party can file a motion to compel, asking the arbitrators to order compliance and possibly impose sanctions.

What is a motion in arbitration?

A motion is a formal request for the arbitrators to make a ruling on a specific issue, such as compelling discovery or dismissing a claim.

Can I request interim relief in arbitration?

Yes, you can request interim relief, such as temporary restraining orders or injunctions, to preserve the status quo pending the final decision.

How are hearing locations determined?

Hearing locations are typically determined by the location of the claimant unless both parties agree to a different venue.

What is a telephonic or virtual hearing?

Telephonic or virtual hearings are conducted via phone or video conference, allowing parties to participate remotely.

How are arbitration awards paid?

Awards are typically paid by the losing party within 30 days of the decision, unless otherwise specified by the arbitrators.

What if the losing party does not pay the award?

If the losing party does not pay, you can seek enforcement through the courts, turning the award into a legally enforceable judgment.

Are there any limits on the types of claims I can bring in arbitration?

FINRA arbitration covers a broad range of claims related to securities, but there are some statutory and regulatory limits on certain types of claims.

Can I bring a class action in FINRA arbitration?

No, class actions are not permitted in FINRA arbitration. However, you can join other claimants in a single arbitration if the claims are similar.

What is the role of expert witnesses in arbitration?

Expert witnesses can provide specialized knowledge and opinions to help explain complex financial issues to the arbitrators.

How are hearing dates scheduled?

Hearing dates are scheduled based on availability of the parties and arbitrators, with consideration for the complexity of the case.

Can I request a different arbitrator if I believe one is biased?

Yes, you can challenge an arbitrator if you believe they have a conflict of interest or bias that affects their impartiality.

What is a “chairperson” in a FINRA arbitration panel?

The chairperson is the lead arbitrator who manages the procedural aspects of the case and ensures the hearing runs smoothly.

How does FINRA ensure fairness in arbitration?

FINRA has rules and procedures in place to ensure a fair and impartial process, including arbitrator training and disclosure requirements.

How do I learn more about the FINRA arbitration process?

For more information, you can visit FINRA’s website, contact their Office of Dispute Resolution, or consult with experienced attorneys like those at Bakhtiari & Harrison.

How can Bakhtiari & Harrison help with FINRA arbitration?

Bakhtiari & Harrison can assist with filing claims, responding, selecting arbitrators, discovery, hearings, and ensuring the best possible outcome through skilled representation and strategic advice.

Should I Pursue FINRA Expungement? A Comprehensive Guide for Stockbrokers

Navigating Your CRD and BrokerCheck Disclosures with Bakhtiari & Harrison

Having a FINRA disclosure on your Central Registration Depository (CRD) record can feel like a professional scarlet letter. It’s a mark that follows you, potentially impacting your career trajectory, client relationships, and even your peace of mind. For stockbrokers, financial advisors, and other registered representatives, the public-facing version of your CRD, known as BrokerCheck, is often the first impression you make on potential clients and employers. A negative disclosure, even if unfounded or minor, can raise serious questions and hinder your ability to thrive in the competitive financial industry.

At Bakhtiari & Harrison, we understand the profound impact these disclosures can have. We’ve dedicated our practice to helping financial professionals like you navigate the complex landscape of FINRA regulations, including the intricate process of FINRA expungement. This comprehensive guide will delve into the critical question: “Should I pursue FINRA expungement?” We’ll explore the pros and cons, the recent rule changes, and why partnering with an experienced legal team is paramount to your success.

The Weight of a Disclosure: Why Your CRD Matters

Your CRD is essentially your professional resume in the financial services industry. It contains a wealth of information about your qualifications, employment history, licenses, and, crucially, any disciplinary actions, customer complaints, or regulatory events. While the CRD is an internal system primarily used by regulators and firms, the information deemed relevant for public consumption is displayed on FINRA BrokerCheck.

Imagine a prospective client researching your background before entrusting you with their investments. They go to BrokerCheck, see a disclosure, and without the full context, they might jump to conclusions. This immediate perception can be damaging. Similarly, if you’re looking to move to a new firm, a negative mark on your CRD can be a significant red flag for compliance departments and hiring managers, potentially closing doors to new opportunities or affecting your compensation package, such as forgivable loans.

Even if an allegation was ultimately dismissed, settled for a nominal amount, or found to be without merit, the mere presence of the disclosure on BrokerCheck can create an unfair narrative. FINRA itself acknowledges the potential for “unjust or inaccurate marks” on a broker’s record. This is precisely where FINRA expungement comes into play – it’s a legal remedy designed to remove or seal such information, allowing you to present a clean, accurate professional record.

What Exactly is FINRA Expungement?

FINRA expungement is the process by which a registered individual seeks to remove customer dispute information from their CRD, and consequently, from BrokerCheck. It’s not a simple deletion but a formal legal process, typically conducted through FINRA Dispute Resolution Services (DRS) arbitration. The goal is to obtain an arbitration award recommending expungement, which, for a customer case, must then be confirmed by a court order before FINRA will permanently delete the information.

The grounds for expungement are narrow and strictly defined by FINRA Rule 2080. An arbitrator or panel of arbitrators must find that one of the following conditions is met:

The claim, allegation, or information is factually impossible or clearly erroneous. This means the events described simply did not happen as alleged, or there’s irrefutable evidence proving the contrary.
The associated person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. This applies when the broker can demonstrate they had no connection to the alleged misconduct.
The claim, allegation, or information is false. This is for instances where the accusations are demonstrably untrue.

It’s essential to note that even if a customer complaint is settled or withdrawn, it does not automatically result in expungement. The burden remains on the associated person to prove one of the above grounds to the arbitration panel.

Recent Changes to FINRA Expungement Rules (Effective October 16, 2023)

The landscape of FINRA expungement underwent significant changes in late 2023, largely in response to concerns from investor advocates about high expungement success rates. These reforms aim to make the process more rigorous and ensure that expungement is granted only in truly merited cases. Understanding these changes is crucial for anyone considering expungement.

Key reforms include:

Special Arbitrator Roster for Straight-In Requests: For “straight-in” expungement requests (those filed separate from a customer arbitration), a panel of three arbitrators will now be randomly selected from a specially trained Roster of Arbitrators. This roster comprises experienced public arbitrators who have also received additional expungement training.
No Ranking or Striking of Arbitrators: Parties are prohibited from ranking and striking arbitrators, stipulating to an arbitrator’s removal, or stipulating to the use of pre-selected arbitrators for straight-in requests. This aims to reduce the potential for “forum shopping” and ensure neutrality.
Unanimous Decision Required: The three arbitrators must unanimously agree to award expungement based solely on the narrow grounds specified in the rules. This is a significant increase in the bar for success.
Mandatory Hearing: A recorded hearing session (in person or via video conference) is required for all expungement requests, regardless of whether the customer objects or consents. The requesting party must attend.
Customer Participation Facilitated: FINRA has implemented protocols to facilitate customer attendance and participation in all aspects of the expungement hearing, including by telephone, in person, or by video conference. State securities regulators are also encouraged to participate.
Time Limits for Filing: New time limits have been introduced for filing expungement requests. Generally, a request must be filed no more than two years after the close of a related customer arbitration or civil litigation, or no more than three years after the customer complaint was initially reported if no arbitration or litigation occurred.
Increased Fees: FINRA has increased the minimum fees associated with expungement proceedings, particularly for straight-in requests. This aims to deter frivolous filings.

These changes make the FINRA expungement process more challenging, but not impossible. They underscore the critical need for experienced legal counsel who are intimately familiar with the updated rules and can strategically navigate the revised procedures.

Pros and Cons of Pursuing FINRA Expungement

Deciding whether to pursue FINRA expungement is a significant professional decision. It involves weighing the potential benefits against the challenges and costs. Here’s a detailed breakdown of the pros and cons:

The Pros: Why Expungement Can Be a Game-Changer

Restoring Your Professional Reputation: This is arguably the most significant benefit. A clean BrokerCheck record signals to potential clients and employers that you are trustworthy, ethical, and have a clear professional history. In an industry built on trust, this can be invaluable. Imagine the difference between a client seeing a complaint about “misrepresentation” or “unsuitability” versus a clean slate.
Enhanced Career Opportunities: Many brokerage firms, especially larger or more prestigious ones, have strict compliance standards. A history of disclosures, even minor ones, can make it difficult to get hired or advance within a firm. Expungement removes these barriers, opening doors to new employment, promotions, and opportunities to join top-tier teams.
Increased Client Trust and Confidence: Clients frequently use BrokerCheck to vet financial professionals. A clean record instills confidence and reassures them that they are making an informed decision about who handles their money. Conversely, a disclosure can immediately raise doubts and lead them to seek services elsewhere, even if the disclosure is misleading or inaccurate.
Protection Against Future Scrutiny: Once information is expunged, it’s permanently deleted from your CRD and no longer accessible to the public, regulators, or prospective employers. This means you won’t face repeated questions or explanations about the incident, reducing ongoing scrutiny and potential negative inferences.
Peace of Mind and Reduced Stress: Living with a negative disclosure on your public record can be a source of constant anxiety and stress. Successfully expunging the information can provide immense peace of mind, allowing you to focus on your career and client relationships without this burden.
Correcting Inaccurate or Unjust Information: If a disclosure stems from a factually impossible, clearly erroneous, or false claim, expungement is the mechanism to correct that injustice. It ensures that your professional record accurately reflects your conduct.
Potential for Higher Earning Potential: With a clear record, you may be more attractive to firms offering better compensation packages, including larger forgivable loans or higher commission payouts. The ability to attract and retain more clients due to a stronger reputation can also directly impact your income.

The Cons: Challenges and Considerations

Cost: Pursuing FINRA expungement can be a significant financial undertaking. Fees include FINRA filing, pre-hearing, and hearing fees (which have substantially increased under the new rules), as well as legal fees for your counsel. These costs can range from several thousands to tens of thousands of dollars, depending on the complexity of the case and the number of hearing sessions required.
Complexity of the Process: The FINRA expungement process is not simple. It involves strict procedural requirements, evidentiary burdens, and the need to navigate arbitration rules. Attempting to pursue expungement without experienced legal representation is highly discouraged, as the chances of success are significantly diminished.
Uncertainty of Outcome: While experienced attorneys can assess the likelihood of success, there’s no guarantee. The outcome depends on the specific facts of your case, the evidence presented, and the discretion of the arbitration panel. The new unanimous vote requirement for straight-in expungements adds another layer of challenge.
Time Commitment: The expungement process can be time-consuming, spanning several months or even over a year, from filing the request to obtaining a court order. This includes preparing the case, attending hearings, and waiting for decisions and confirmations.
Increased Scrutiny from Regulators: While the goal is to remove information, the process itself brings your record under direct scrutiny by FINRA. While this is a necessary part of the process, it’s something to be aware of.
Customer and State Regulator Participation: Under the new rules, customers are more easily able to participate in expungement hearings, and state securities regulators are also notified and may choose to intervene. While their presence doesn’t automatically preclude expungement, it can add another layer of complexity to the proceeding.
Limited Grounds for Expungement: As discussed, expungement is only granted under very specific, narrow grounds. It’s not a blanket solution for any negative disclosure. If your situation doesn’t clearly fit one of the three criteria, your chances of success are low.

The Importance of Experienced Legal Counsel

Given the complexities, costs, and high stakes involved in FINRA expungement, retaining experienced legal counsel is not merely advisable – it’s essential. Here’s why Bakhtiari & Harrison stands out:

Deep Understanding of FINRA Rules and Procedures: The FINRA arbitration rules, especially those pertaining to expungement, are highly specialized and constantly evolving. Our attorneys are intimately familiar with these rules, including the recent 2023 amendments, ensuring your case is presented effectively and in compliance with all requirements.
Strategic Case Development: We don’t just file papers. We conduct a thorough analysis of your CRD disclosure, gather all necessary evidence, identify the strongest legal grounds for your expungement, and meticulously build a compelling case. This includes preparing detailed statements of claim, identifying and preparing witnesses, and compiling supporting documentation.
Arbitration Hearing Experience: The expungement hearing is a critical juncture. Our attorneys are skilled litigators with extensive experience representing financial professionals in FINRA arbitration. We know how to effectively present your case to the arbitration panel, address any objections, and cross-examine witnesses.
Negotiation and Settlement Experience: While expungement typically proceeds through arbitration, there may be opportunities for negotiated resolutions, particularly if the firm erred in its reporting. Our firm is adept at exploring all avenues to achieve the best possible outcome for our clients.
Court Confirmation Proficiency: Obtaining an arbitration award is only half the battle. In customer cases, the award must then be confirmed by a court order for FINRA to expunge the information. We handle the entire court confirmation process, ensuring all legal requirements are met to finalize the expungement.
Proven Results and Track Record: Bakhtiari & Harrison has a strong track record of success in FINRA expungement cases. We’ve helped numerous financial professionals clear their records, allowing them to rebuild their careers and reputations. Our experience enables us to understand the nuances of these cases and anticipate potential challenges. We take pride in delivering exceptional results for our clients nationwide.

While the overall “win rate” for brokers in expungement cases has reportedly declined since the 2023 reforms, particularly for straight-in requests, success is still achievable with the right legal strategy and a strong factual basis. Our firm remains committed to fighting for financial professionals whose careers are unfairly jeopardized by inaccurate or erroneous disclosures.

Is FINRA Expungement Right for You?

To determine if FINRA expungement is a viable and beneficial path for you, consider the following:

Nature of the Disclosure: Does your disclosure fall squarely within one of the three narrow grounds for expungement (factually impossible/clearly erroneous, not involved, or false)? If the disclosure truly reflects misconduct, expungement is unlikely.
Strength of Your Evidence: Do you have strong, verifiable evidence to support your claim for expungement? This could include documents, emails, witness testimony, or other records that contradict the disclosure.
Financial Investment: Are you prepared for the financial commitment involved in pursuing expungement, including legal and FINRA fees?
Career Goals: How significantly is the disclosure impacting your current career and future aspirations? Is a clean BrokerCheck report essential for your professional advancement?

If you believe your disclosure meets the criteria for expungement and you’re committed to investing the time and resources, then pursuing expungement can be a transformative step for your career.

A Fresh Start: Reclaiming Your Professional Narrative

A negative disclosure on your CRD and BrokerCheck can feel like a permanent stain. However, with the right legal guidance and a strategic approach, it doesn’t have to be that way. FINRA expungement offers a pathway to a fresh start, allowing you to reclaim your professional narrative and present an accurate, unblemished record to the world.

Don’t let an outdated, unfair, or inaccurate disclosure define your professional future. Take control of your career and explore the possibility of FINRA expungement.

Contact Bakhtiari & Harrison Today!

If you are a stockbroker with a FINRA disclosure on your CRD and are considering FINRA expungement, don’t hesitate. The process is complex, and the recent rule changes make experienced legal representation more critical than ever.

Contact Bakhtiari & Harrison today for a confidential consultation. Our experienced team has a proven track record of successfully guiding financial professionals through the FINRA expungement process. Let us assess your case, discuss your options, and help you determine the best course of action to achieve a clean BrokerCheck record and secure your professional future.

We understand the intricacies of FINRA regulations and have the expertise to deliver the proven results you need.

FAQs

What is FINRA Expungement?

FINRA Expungement is a legal process through which a registered individual seeks to remove customer dispute information from their Central Registration Depository (CRD) record, which then clears the corresponding disclosure from their public BrokerCheck report. It typically involves an arbitration proceeding before FINRA Dispute Resolution Services.

Why is a FINRA disclosure on BrokerCheck bad for a stockbroker?

A FINRA disclosure on BrokerCheck can significantly harm a stockbroker’s career by damaging their professional reputation, eroding client trust, and limiting future employment opportunities. Prospective clients and employers often view these disclosures as red flags, regardless of the underlying circumstances.

What are the grounds for Customer-Related FINRA Expungement?

FINRA Rule 2080 specifies three narrow grounds for expungement: (1) the claim, allegation, or information is factually impossible or clearly erroneous; (2) the associated person was not involved in the alleged misconduct; or (3) the claim, allegation, or information is false.

Can I get a customer complaint removed from my BrokerCheck even if it was settled?

Settlement of a customer complaint does not automatically lead to expungement. You must still successfully petition a FINRA arbitration panel and demonstrate that one of the three narrow grounds for expungement (factually impossible/clearly erroneous, not involved, or false) is met, even if the customer has agreed to the expungement.

How much does FINRA Expungement cost?

The cost of FINRA Expungement can vary significantly but generally includes FINRA filing, pre-hearing, and hearing fees (which have increased under recent rule changes), along with legal fees for your attorney. Total costs can range from several thousands to tens of thousands of dollars, depending on the complexity and duration of the case.

What are the new FINRA Expungement rules that went into effect in October 2023?

Key changes include requiring straight-in expungement requests to be heard by a three-person panel from a Special Arbitrator Roster, mandating a unanimous decision for expungement, prohibiting parties from selecting or striking arbitrators, requiring mandatory in-person or video hearings, facilitating customer participation, and imposing new time limits for filing requests.

How long does the FINRA Expungement process take?

The entire FINRA Expungement process, from filing the arbitration request to obtaining a final court order confirming the expungement, can take several months to over a year. The timeline depends on factors like case complexity, arbitration scheduling, and court availability for confirmation.

Do I need a lawyer for FINRA Expungement?

While not legally mandatory, retaining an experienced attorney is highly recommended for FINRA Expungement. The process is legally complex, involves strict procedural rules and evidentiary burdens, and requires specialized knowledge of FINRA arbitration and court confirmation procedures.

What is the difference between CRD and BrokerCheck?

The Central Registration Depository (CRD) is an internal FINRA database that contains detailed information about all registered securities professionals and firms. BrokerCheck is the public-facing version of the CRD, providing investors with a condensed and searchable summary of a broker’s professional history, licenses, and certain disclosures.

What happens after a FINRA arbitration panel recommends expungement in a customer-related case?

If a FINRA arbitration panel recommends expungement, the associated person must then seek a court order to confirm the arbitration award. FINRA will not remove the information from the CRD (and thus BrokerCheck) until a court issues an order directing the expungement. This court confirmation process involves a separate legal proceeding.