For a broker who has been terminated, seeking U5 expungement can feel like a necessary step to remove what can become a permanent stain on your career. A “termination for cause” or even a “permitted to resign” with a negative comment can halt your ability to find new employment, trigger regulatory inquiries, and permanently damage the reputation you spent decades building. For years, the primary path to removing this language—or a related customer dispute—was a “straight-in” FINRA expungement request. This was often a quiet, one-sided affair where the only real parties were you and your former firm, who might not even oppose the action.
That era is over.
The FINRA expungement landscape was completely rewritten by new rules that took full effect on October 16, 2023. While much has been written about the new unanimous 3-arbitrator panel and the strict time limits, the most profound strategic shift comes from a new notification requirement.
Your expungement hearing is no longer a private proceeding.
Under the new FINRA Rule 13805, two new sets of eyes are now invited to your hearing: the customer from the underlying dispute and your state securities regulator.
These are not passive observers. They are active participants who can, and often will, oppose your request. They are, in effect, your new adversaries. This single change converts your expungement case from a simple administrative filing into a complex, multi-party litigation that you must be prepared to win.
This article explores how this new notification requirement fundamentally changes the strategy for any terminated broker seeking to clear their U5 disclosure.
The “Empty Chair” Is Gone: What Straight-In Expungement Used to Be
To understand how much has changed, you must first understand what the old “straight-in” expungement process looked like.
A broker seeking to expunge a customer dispute from their CRD record would file a FINRA arbitration claim. In this claim, the broker (the “Claimant”) would name their own brokerage firm (the “Respondent”) as the only other party.
Why would they sue their own firm? Because the firm is the one who “published” the language on the U5 or reported the customer complaint. To get the record changed, the broker had to “sue” the firm to get an arbitration award directing FINRA to make the change.
However, in many of these cases, the firm had no real objection. The firm’s attorney and the broker’s attorney may have even worked together. The firm might not have shown up to the hearing at all, leaving an “empty chair.” The broker would present their case to a single arbitrator, uncontested, and—unsurprisingly—the vast majority of these requests were granted.
Investor advocates and state regulators argued this was a broken system. They claimed that the most important people—the customer who was allegedly harmed and the regulators protecting the public—were left in the dark. In their view, brokers were “erasing” valid complaints, harming the integrity of the public BrokerCheck system.
FINRA agreed. Their new rules are a direct response to this criticism, and they are aimed squarely at ending the “empty chair” expungement.
Adversary 1: Why Notifying the Customer Changes the Entire Dynamic
The most significant new rule is that the customer who filed the original complaint—the one you are trying to expunge—must now be notified of your expungement hearing.
This is not a passive “FYI” email. This new rule gives the customer substantial and specific rights that can turn your hearing upside down. 
How the New Customer Notification Process Works
Under the new rules, the broker seeking expungement must make a good-faith effort to serve the customer with the Statement of Claim (the lawsuit) and other key documents. FINRA’s Dispute Resolution Services staff will also notify the customer of the hearing.
Once notified, the customer (and their attorney, if they choose) has the right to:
- Attend the Hearing: They can show up in person, by telephone, or by video conference.
- Testify: The customer can take the stand and tell their entire side of the story directly to the arbitrators.
- Submit Evidence: They can provide the panel with the same documents they would have used in the original case—account statements, emails, and notes.
- Make Arguments: The customer or their lawyer can make opening and closing statements about why your expungement request should be denied.
Why a “Settled” Case Doesn’t Mean a Silent Customer
Many brokers terminated over a customer dispute fall into a dangerous trap. They assume that because the original customer case was settled, the customer is “done” and won’t care. They may even believe a confidentiality clause or NDA in the settlement agreement prevents the customer from speaking.
This is a critical, and potentially fatal, misunderstanding.
- Arbitration Is Not a Public Lawsuit: A FINRA arbitration is a private, quasi-judicial proceeding. A settlement NDA cannot be used to prevent a party from testifying or providing evidence in a formal legal or regulatory hearing. The panel will almost certainly allow the customer to speak.
- Money Doesn’t Heal All Wounds: The customer may have taken the settlement but still feel they were wronged. They may have felt the settlement was too small or that they were pressured by their own attorney. The notification of your expungement hearing is their “second bite at the apple”—a chance to be heard and ensure the “truth” (as they see it) remains on your public record.
- “Victim’s Rights” Mentality: The customer may feel a moral obligation to “warn” the public about you. They may see your attempt to clear your record not as correcting an error, but as hiding misconduct. This is a powerful motivator to show up and testify, even for just an hour.
What If the Customer Is Non-Responsive or Cannot Be Located?
This is a key procedural question. Your legal counsel must demonstrate to the panel that you made a “best effort” to locate and serve the customer. This typically involves using a private investigator and documenting all attempts.
If the customer truly cannot be found, the hearing may proceed without them. However, you should never assume this will be the case. You must build your entire strategy as if the customer will be sitting in the room with you. If you don’t, and they appear on the hearing video feed, your case will likely crumble.
Strategic Impact: You Must Now Re-Litigate the Original Complaint
The takeaway is simple: Your expungement hearing is no longer just about the U5 language. It is a full re-trial of the original customer complaint.
Before, you could focus on the reason for your termination, arguing it was defamatory or disproportionate. Now, you must be prepared to prove to a 3-person panel—while the customer is watching and testifying—that the entire underlying customer claim meets one of the three grounds in FINRA Rule 2080:
- The claim is “factually impossible”;
- The claim is “clearly erroneous”; or
- You were “not involved” in the alleged misconduct.
This is a much higher bar. You are no longer just fighting your firm’s HR department; you are fighting the original customer all over again.
Adversary 2: The State Regulator Is Now the “Public’s Advocate”
As if re-litigating the customer complaint wasn’t enough, the new rules add a second, and far more formidable, potential opponent: your state securities regulator.
Under the new rules, FINRA must notify the state securities regulator(s) in every state where the broker is or was registered. And, critically, these regulators have the right to attend and participate in the hearing.
Who Are These Regulators and What Is Their Role?
This isn’t just a clerk. This is an attorney from the enforcement or litigation division of your state’s securities board (like the Texas State Securities Board, the Florida Office of Financial Regulation, or the California Department of Financial Protection and Innovation).
Their entire job is to enforce securities laws and protect the investing public. They are not neutral. They are, by default, skeptical of any broker trying to remove a negative mark from their public record.
Under FINRA rules, the state regulator can join the hearing as a “non-party.” This special status gives them incredible power. They can:
- Submit Evidence: They can introduce your entire CRD history, prior complaints, or other “pattern” evidence.
- Cross-Examine Witnesses: The state’s attorney can—and will—cross-examine you on the stand.
- Make Legal Arguments: They can present their case to the panel on why your expungement request fails to meet the legal standard and why it is not in the “public interest” to grant it.
Why Would a State Regulator Bother Opposing Your Expungement?
A state regulator’s resources are limited. They won’t intervene in every single case. But for a broker who was terminated, the incentive for them to show up is much higher.
They will likely intervene if:
- The Underlying Complaint is Serious: Any case involving elder abuse, forgery, selling away, or significant monetary loss will get their attention.
- The Termination Was “For Cause”: If your U5 says “discharged” for “violating firm policy” or “failure to follow procedures,” they will want to know exactly what that means. They will see it as their job to defend that public disclosure.
- You Have a “Pattern”: If you have two or more customer complaints, even if they are small, the regulator may intervene to argue that a “pattern” of misconduct exists and the public has a right to see it.
- The Firm Supports You: This is a counter-intuitive but critical point. If you and your former firm are aligned in seeking the expungement, the state regulator may see itself as the only party left to represent the public’s interest.
What If the Firm and I Are Aligned? Will the State Regulator Still Intervene?
This is a scenario where regulator intervention is more likely.
In the past, a broker could negotiate with their former firm to get the firm to “not oppose” the expungement. The broker might even agree to pay the firm’s legal fees for their time. This “friendly” lawsuit was a common way to get a quick, unopposed award.
Now, that same cooperation is a massive red flag for a state regulator. They will see the alignment and suspect collusion. They will step in to become the de facto respondent, creating the opposition that they believe is necessary for the panel to hear “both sides” of the story.
Strategic Impact: You Are No longer “Under the Radar”
Being cross-examined by a customer is difficult. Being cross-examined by a professional government enforcement attorney is a different ballgame.
These attorneys are highly trained in finding inconsistencies in your story. They will not just ask about the customer complaint; they will ask about your entire career. They will question your compliance record, your understanding of firm policy, and your financial motivations.
Their presence elevates the entire proceeding. The arbitration panel, already composed of three arbitrators, will give the regulator’s arguments significant weight. They are, in effect, a voice of “the public,” and panels are highly sensitive to that.
How These “New Adversaries” Compound Other New FINRA Rules
These notification rules don’t exist in a vacuum. They work in concert with the other new FINRA rules to make expungement exponentially more difficult.
The most important connection is to the Unanimous 3-Arbitrator Panel.
Before the new rules, you often just had to convince one arbitrator. Now, you must win a unanimous decision from a three-person panel. This panel is also specially selected by FINRA from a “special roster” of experienced arbitrators, and you have no right to strike or remove them.
Now, add your new adversaries to this equation.
- A grieving, emotional customer tells a compelling story. It may not be legally “true,” but it is powerful. It only needs to plant a seed of doubt in one of the three arbitrators’ minds to break the unanimous decision and kill your case.
- A state regulator pokes a single hole in your testimony during cross-examination. One arbitrator finds you less than credible. Your case is over.
For a terminated broker, this dynamic is especially dangerous. Your case is not just about a customer complaint; it’s about your U5 termination language. You must now defend your termination—proving it was defamatory, inaccurate, or false—while being attacked by the original customer, your former firm (who may show up to defend its language), and a state regulator.
This is a three-front war, and you must win on all three fronts.
What a Winning U5 Expungement Strategy Looks Like Now
The message is clear: The process for terminated brokers seeking expungement is now more complex, more expensive, and more adversarial than ever before.
A “do-it-yourself” approach or hiring a general-purpose attorney who has only handled the “old” way of expungements is no longer a viable option. It is a recipe for failure, and under the new rules, a failure is permanent. You cannot re-file your request.
A winning strategy in this new environment must be comprehensive and built for a contested trial.
1. Stop Thinking “Simple Filing,” Start Thinking “Full Trial”
Your legal team must treat this as a full-blown arbitration trial from day one. This includes:
- A Detailed Statement of Claim: This document must be a powerful narrative that not only states your case but anticipates the arguments from the customer and regulator.
- Full Document Discovery: You must gather every email, every client note, every compliance log, and every performance review that supports your case.
- Pre-Hearing Briefs: Depending on the case, counsel may submit a detailed brief to the panel that outlines the facts, applies the law (Rule 2080), and preemptively dismantles the customer’s original complaint.
2. Proactive Defense: Preparing for the Customer’s Story
You cannot wait to see if the customer shows up. You must build your case assuming they will be there and will give the most damaging testimony possible. This means your own testimony must be flawless. You and your legal team must practice your direct testimony and prepare for a hostile cross-examination, addressing the customer’s allegations head-on.
3. Anticipating the Regulator’s Playbook
A legal team familiar with this process will understand what state regulators look for. Your case cannot be just about “you.” It must be framed as an action to improve the integrity of the public record. You are not hiding a mark; you are correcting a false one. This is a subtle but critical distinction. Your counsel must be prepared to show the panel that granting the expungement serves the public interest because the information on your BrokerCheck is demonstrably false.
A U5 Termination Is Not a Life Sentence, But the Path Is Narrower
A termination disclosure on your U5 can feel like the end of your career, but it doesn’t have to be. The FINRA expungement process, while more difficult, still exists for a reason: to correct factual impossibilities, clear errors, and false statements.
However, the battlefield has changed. You are no longer filing a simple request. You are entering a proceeding where you may face opposition from the customer, your former firm, and a state regulator, all at the same time. You must be prepared to litigate against all of them and win a unanimous decision from a panel of three arbitrators.
Success in this new, high-stakes environment requires thorough preparation, compelling evidence, and dedicated legal representation that understands the new rules and how to navigate them.
How Bakhtiari & Harrison Can Help
Navigating the new FINRA expungement rules requires a deep understanding of arbitration procedure and the new strategic challenges they present. At Bakhtiari & Harrison, our practice is dedicated to representing financial advisors in FINRA arbitrations and regulatory matters. We are thoroughly familiar with the new expungement framework under FINRA Rule 13805 and the challenges posed by customer and state regulator participation.
We have a long history of guiding brokers through complex U5 termination and customer dispute arbitrations. We build each case with the meticulous preparation of a full trial, ready to confront opposition and present a clear, evidence-based argument to the panel.
If you are a terminated broker with a damaging U5 disclosure on your record, do not wait. Your time to file is now limited. Contact Bakhtiari & Harrison for a confidential consultation to understand your rights and assess the viability of your expungement case under this new set of rules.
People Also Asked
What is the new FINRA expungement rule? The “new rule” refers to major amendments to the FINRA Codes of Arbitration Procedure that took effect on October 16, 2023. These changes, primarily impacting FINRA Rule 13805 (“straight-in” requests), make expungement significantly harder by requiring a unanimous decision from a 3-arbitrator panel, mandating notification of customers and state regulators, and imposing strict, shorter time limits for filing.
Can I still get a customer dispute expunged? Yes, expungement is still possible, but the process is much more difficult, expensive, and adversarial. You must meet one of the three specific standards in FINRA Rule 2080 (factually impossible, clearly erroneous, or not involved) and win a unanimous award from a special 3-arbitrator panel, all while facing potential opposition from the customer or state regulators.
What is a straight-in expungement request? A “straight-in” expungement request (governed by FINRA Rule 13805) is an arbitration claim filed by a broker for the sole purpose of clearing a disclosure from their record. This is filed separately from any customer-initiated arbitration and is the path a broker would take to clear an old complaint or a U5 termination disclosure. These requests are now subject to the strictest new rules.
Do I have to notify the customer in my expungement case? Yes. Under the new rules, the broker seeking expungement must make a good-faith effort to serve the customer with the claim. FINRA’s staff will also notify the customer of the hearing. This is a major change, as the customer was often unaware of old expungement proceedings.
What rights does a customer have in a FINRA expungement hearing? The customer has significant rights. They, and their attorney, can attend the hearing (in person, by phone, or video), submit evidence, testify before the panel, and make arguments as to why your expungement request should be denied. They are now an active party in the proceeding.
Will my state regulator be notified if I file for expungement? Yes. FINRA is now required to notify the state securities regulators in all states where the broker is or was registered. These regulators are invited to attend the hearing and participate.
Can a state regulator stop my expungement? A state regulator cannot unilaterally “veto” an expungement. However, they can act as a “non-party” to strongly oppose your request. They can cross-examine you, submit evidence (like your CRD history), and make a “public interest” argument to the panel. This opposition makes it significantly harder to win the required unanimous decision.
What does a “non-party” regulator do in an arbitration? As a “non-party,” a state regulator acts as an advocate for the public. They can make opening and closing statements, submit evidence, and cross-examine witnesses (including the broker). Their goal is to challenge the expungement request and argue that the disclosure has regulatory value and should remain on the broker’s public record.
What if I settled the customer complaint and they signed an NDA? A non-disclosure agreement (NDA) or confidentiality clause from a civil settlement generally cannot be used to prevent a customer from testifying or providing evidence in a quasi-judicial FINRA arbitration proceeding. The panel will almost certainly permit the customer to speak if they choose to attend.
What does “terminated for cause” mean on a U5? This typically refers to the “Discharged” box being checked on the Form U5. The firm must then provide a “Termination Explanation.” This means the broker was fired for a specific reason, often alleging a violation of firm policy, industry rules, or other misconduct. It is one of the most damaging disclosures a broker can have on their record.
Can I expunge a “permitted to resign” disclosure? Yes, you can seek to expunge this disclosure, particularly the explanation provided by the firm. Often, a broker is “permitted to resign” while under internal investigation. The firm’s explanation for this (e.g., “resigned while under review for…”) can be just as damaging as a “discharged” status. You can file to have this language modified or expunged by proving it is false, misleading, or defamatory.
How is the new 3-arbitrator panel chosen? For “straight-in” requests, the panel is randomly selected by FINRA from a special “roster” of experienced public arbitrators who have received enhanced expungement training. Critically, under the new rules, the parties (the broker and the firm) cannot strike or agree to remove any of the arbitrators.
Do I need a unanimous decision to win expungement? Yes. For all expungement requests involving customer dispute information, the 3-arbitrator panel must be unanimous in its decision to grant the award. If even one of the three arbitrators dissents, your request is denied, and you are permanently barred from re-filing.
What is the new time limit to file for expungement? FINRA now imposes strict time limits for “straight-in” requests. A broker must file within:
- 2 years of the closing date of the customer’s arbitration or civil litigation; OR
- 3 years from the date the customer complaint was first reported to CRD, if no arbitration or litigation was filed.
How much does a FINRA expungement cost now? The costs have increased substantially. FINRA’s administrative fees for a “straight-in” request, which are borne by the broker, can now exceed $10,000 before any legal fees are paid. This includes a non-refundable filing fee (e.g., $3,750) and all hearing session fees.
What happens if I was terminated and the customer complaint came later? This is a complex situation involving two separate, damaging disclosures. The U5 termination explanation is an “intra-industry” dispute between you and your firm. The customer complaint falls under the “customer dispute” rules. You would likely need to file for expungement of both disclosures, which may involve different procedures and strategies.
Why is it harder to get an expungement now? It is harder by design. FINRA’s new rules are intended to make the process more rigorous and transparent. The requirement for a unanimous 3-arbitrator panel, the mandatory notification of customers and state regulators (who can oppose you), and the high costs all create significant new hurdles that did not exist before.
What is FINRA Rule 2080? This is the foundational rule for expungement. It states that a panel can only grant expungement of a customer dispute if it finds that the disclosure meets one of three specific grounds:
- The claim, allegation, or information is “factually impossible”;
- The claim, allegation, or information is “clearly erroneous”; OR
- The broker “was not involved” in the alleged investment-related sales practice violation.
What does “clearly erroneous” mean for expungement? “Clearly erroneous” means a clear and definite mistake was made on the record. This is more than a simple disagreement. It requires proof that the disclosure is factually incorrect, such as naming the wrong broker, listing a wildly inaccurate damage amount, or misstating the nature of the allegation in a provable way.
What does “factually impossible” mean for expungement? This is the highest standard. It means the allegation is not just unlikely, but impossible. This requires definitive proof, such as evidence showing you never spoke to the client, you were not employed at the firm during the period in question, or you were provably out of the country when the alleged event took place.
How do I prove I was “not involved” in a customer dispute? You must provide affirmative evidence demonstrating you had no role in the alleged misconduct. This is common for managers or brokers who were named in a complaint simply for being associated with an account. Evidence could include firm records, CRM notes, or emails showing another broker was solely responsible for the account and the alleged violation.
What evidence do I need to win a U5 expungement? Your testimony alone is not enough. You need objective, documentary evidence to prove your case. This includes emails, client notes, performance reviews, compliance logs, account statements, internal firm memos, and potentially, testimony from a former manager or colleague. You must be prepared to prove the disclosure is false or meets one of the Rule 2080 standards.
Should I file for expungement of a termination disclosure? A negative termination disclosure (like “Discharged” or “Permitted to Resign” with a negative explanation) can severely limit your career. Filing to expunge or modify this language is often critical for your future ability to find employment. You must be prepared to prove the firm’s explanation is false, defamatory, or misleading.
What if my old firm agrees to the expungement? Under the new rules, this is no longer a simple path to victory. While helpful, a firm’s agreement is now a red flag for state regulators, who may intervene to create opposition. The 3-arbitrator panel still must make its own independent, unanimous finding based on the evidence. An agreement does not guarantee an award.
Do I need a lawyer for a FINRA expungement hearing? While you can technically represent yourself, it is extremely inadvisable. The new expungement process is a complex, formal legal proceeding. You must win a unanimous decision from a 3-arbitrator panel against potential opposition from customers, your former firm, and state regulators. A procedural mistake can be fatal, as you cannot re-file your request if you lose.