Expunging a Customer Complaint From the Record
Expungement is extraordinary relief. It requires a unanimous panel finding on one of three narrow grounds, a hearing conducted under specialized rules, and confirmation by a court before anything is actually removed from the record.
The rule in short
Customer dispute information may be removed from the central registration record only where a panel unanimously finds that the claim is factually impossible or clearly erroneous, that the person was not involved in the alleged violation, or that it is false. A specialized panel of three public arbitrators decides the request, state securities regulators may participate, and a court order confirming the award is required.
The central registration record is designed to accumulate. Reported items persist, and the rules provide no routine mechanism for aging them out. Expungement is the exception, and it is deliberately narrow: relief is available only where a panel makes one of three findings unanimously, after a hearing conducted under specialized rules, and only after a court confirms the resulting award.
The three grounds
A panel may recommend expungement of customer dispute information only where it finds that the claim, allegation or information is factually impossible or clearly erroneous; that the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or that the claim, allegation or information is false. The findings must be unanimous, and the panel must provide a written explanation identifying the specific evidence on which it relied.
The grounds share a common feature: each addresses accuracy rather than fairness. The rule does not permit expungement because the allegation was resolved without payment, because the customer withdrew it, because it is old, or because it has become an obstacle to the person's career. Those considerations are real and they are not grounds. A panel persuaded that an item is unfair but unable to find it false has no authority to grant relief.
The evidentiary burden falls on the person seeking expungement. That is an unusual posture, because the moving party is asking a panel to find a negative about an allegation the customer may never have litigated. Panels are directed to review the settlement documents where the underlying matter settled, to consider the amount paid and any other relevant terms, and to consider whether the customer opposed the request.
Panels are also directed to consider the number of prior expungement requests the same person has made and the outcomes of those requests. A pattern of allegations across unrelated customers is treated as relevant to whether any one of them is false, on the reasoning that repetition is itself evidence a panel should weigh.
How the request is made
There are two routes. The first is a request made within the customer arbitration itself, decided by the panel hearing the underlying dispute, ordinarily after the merits have been resolved or the case has settled. The second is a separate request filed after the customer matter has concluded, sometimes called a straight-in request, in which the associated person names the member firm as respondent.
The second route attracted the greater share of concern, because a proceeding in which the customer is absent and the respondent firm is indifferent can proceed with no adversarial testing at all. The rules responded by restricting who may hear such requests, by giving state regulators a role, and by imposing deadlines on when a straight-in request may be filed relative to the underlying event.
A straight-in expungement request is heard by three public arbitrators drawn from a roster of chair-eligible arbitrators who have completed enhanced training and have experience serving on customer arbitrations with hearings held. A random algorithm selects them. The parties may not stipulate to fewer than three arbitrators, may not stipulate to pre-selected arbitrators, and may not strike those the algorithm chose, though challenges for cause remain available.
The hearing and who may participate
The forum notifies the state securities regulator in the state where the associated person is registered within a short period after a complete request is filed, and provides access to the relevant documents. An authorized representative of the regulator who gives notice within the stated period may attend and participate in prehearing conferences and in the hearing, introduce evidence, cross-examine witnesses and present argument. The panel may not allow that participation to delay the scheduling materially.
The customer is also given notice and an opportunity to appear, testify and present evidence, whether or not the customer is formally a party. Panels are directed to allow the customer to participate in a manner the panel considers appropriate. In practice the customer often does not appear, which places the burden of testing the request on the state regulator where one participates and on the panel's own questioning where none does.
Hearings are conducted in person, by video or by telephone as the panel directs, and a recorded hearing is required. The panel must consider the customer's position, the underlying settlement if any, and any prior expungement requests relating to the same item, and must state its reasoning in the award rather than reciting the rule's language.
| Stage | Requirement | Who may take part |
|---|---|---|
| Request within the customer case | Decided by the panel hearing the dispute | Customer and respondent as parties |
| Straight-in request after the case | Member firm named as respondent | Customer on notice; state regulator on notice |
| Panel selection | Three public chair-eligible arbitrators, randomly selected | No stipulations, no strikes of the selections |
| Hearing | Recorded; settlement terms reviewed | Customer and state regulator may participate |
| Award | Unanimous findings with written explanation | Panel |
| Confirmation | Court order before removal | Self-regulatory organization named unless waived |
Timing constraints also apply. A straight-in request must be filed within a stated period measured from the close of the underlying customer arbitration or from the date the complaint was reported, and a request relating to an item on which expungement was previously denied may not be relitigated. Those limits were added because the same item was in some cases the subject of repeated attempts until a receptive panel was found.
The court order and what follows
A favorable award does not remove anything by itself. The record custodian will expunge customer dispute information only on directive of a court of competent jurisdiction or on an arbitration award containing the required findings that has been confirmed by a court. The associated person must therefore bring a confirmation proceeding, and must name the self-regulatory organization as a party unless it waives that requirement after reviewing the award.
The waiver decision is where an additional layer of scrutiny sits. Where the organization declines to waive, it may appear and oppose confirmation, and the court then decides whether the award should stand under the ordinary standards for reviewing arbitration awards, which are narrow but not empty. The grounds available on such a challenge are the statutory ones described in industry arbitration of a customer dispute.
An expungement that succeeds removes the customer dispute item from the public record; it does not undo the reporting obligations that produced it, which are described in the disciplinary record a firm must report. Nor does it reach items arising from a regulator's own action, whose resolution follows the route in settling an enforcement action. Where the underlying complaint concerns a recommendation, the standard against which it was measured is described in the standard owed to a retail customer.
Points to carry away
- Expungement requires a unanimous panel finding on one of three grounds and a written explanation identifying the supporting evidence.
- Requests filed by an associated person are heard by three public arbitrators eligible for the chairperson roster, selected by a random algorithm.
- The parties may not stipulate to fewer than three arbitrators or to pre-selected arbitrators, and may not strike the algorithm's selections.
- State securities regulators receive notice and may attend and participate in the prehearing conferences and the hearing.
- The award must be confirmed by a court of competent jurisdiction before the information is removed from the record.
Questions readers ask
Who is named as a party in an expungement proceeding?
Where the request is made during the underlying customer arbitration, the customer is already a party and may oppose it. Where it is filed separately after the customer case has ended, the rules require the associated person to name the member firm at which they were associated at the time of the events as the respondent, so that someone is present to respond. The customer is given notice and an opportunity to participate, and the panel may hear from the customer even where the customer chooses not to appear formally.
Can expungement be obtained as a term of a settlement?
No, and the rules address the point directly. Conditioning a settlement on a customer's agreement not to oppose expungement is prohibited, and a panel must make the required findings on the evidence rather than on the parties' agreement. Panels are instructed to inquire into the settlement terms and the amount paid, precisely because a settlement payment is evidence bearing on whether the allegation was false or clearly erroneous.
What does a court add to the process?
Confirmation. The panel's award is an arbitration award, and the record custodian will not act on it until a court of competent jurisdiction confirms it. The confirmation proceeding is not a rehearing of the merits; the court applies the ordinary standards governing confirmation and vacatur of arbitration awards. The self-regulatory organization must be named as a party in the confirmation action unless it waives that requirement, which gives it an opportunity to oppose an award it regards as unsupported.
Sources
- FINRA Rule 2080 — Obtaining an order of expungement of customer dispute informationSets the three grounds and requires a court order before information is removed.
- FINRA Rule 13805 — Expungement of customer dispute informationRequires unanimous findings with a written explanation and provides for state regulator participation.
- FINRA Rule 13806 — Panel to decide requests for expungementSpecifies the three-arbitrator panel drawn from the enhanced roster and bars stipulations around it.
- FINRA Rule 4530 — Reporting requirementsCreates the reported entries that an expungement proceeding seeks to remove.
- 9 U.S.C. § 10 — Vacation of an arbitration award; grounds (Cornell LII)Supplies the standards a court applies when an expungement award is challenged.
- FINRA Rule 12200 — Arbitration under an arbitration agreement or the rules of FINRAGoverns the underlying customer proceeding in which many requests are first raised.
Pinnacle Law Review is a publication, not a law firm. This article states general rules and cites its sources; it is not advice about any particular case, and the law differs by state and changes over time.
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