Case Study- Expungement, Vacate, and Confirmation

TLDR- FINRA arbitrators can get it wrong with clearly false customer disputes and FINRA will heavily oppose any effort to correct a clear mistake. This can be overcome, but there are better options for expungement outside of FINRA arbitration, contact us today for a free consultation. Below is a horror story about a client of ours who went through expungement.

HLBS was retained by a client (“D.W.”) who was seeking expungement of a customer dispute published by FINRA. The customer dispute was settled for $4,000 as a business decision by the broker-dealer (“Firm”) and D.W. did not contribute or choose to settle the dispute. An action for expungement was filed in FINRA arbitration alleging the customer dispute was eligible for expungement under FINRA Rule 2080. If successful, the expungement would remove the disclosure from BrokerCheck, Form U-4, and the Central Registration Depository (“CRD”).

At the final hearing in FINRA arbitration, the firm did not oppose expungement or present any evidence. The customer that filed the complaint was served with notice of the hearing and chose not to appear at the hearing.  The settlement was produced for the hearing that reflected the settlement and D.W.’s non contribution to the $4,000. D.W. testified under oath and presented evidence that the handling of the client’s account was consistent with firm policies and FINRA rules. The arbitrator denied the award.

D.W. decided to seek a motion to vacate the arbitration award. Motions to vacate FINRA arbitration awards are difficult to win, but considering the overwhelming evidence in support of expungement and the non-opposition of the Firm and customer, a motion to vacate was appropriate. A motion to vacate was filed in state court and the Firm was named in the vacate. Again, the Firm did not oppose the motion to vacate because the Firm never opposed the expungement. A state court judge ordered the FINRA arbitration award vacated based on the evidence and remanded the case back to FINRA arbitration.

The case was re-filed for expungement in FINRA arbitration, and the case was assigned a new arbitrator. The customer was served with notice of the hearing and chose not to appear. The evidence was presented a second time under oath. The arbitrator issued an arbitration award recommending expungement because the customer dispute was false, based on the evidence.

FINRA arbitration awards need to be confirmed by a court for FINRA to remove the disclosure from the CRD and BrokerCheck. Confirmations of arbitrations awards are procedural in nature and are rarely ever opposed because courts do not want to interfere with arbitration decisions. FINRA in this confirmation heavily opposed confirmation and made baseless accusations of fraud and that FINRA is required to be named in a motion to vacate. The judge in the confirmation shot down these arguments and confirmed the arbitration award because FINRA could not point to any rule that they are required to be named in a motion to vacate, in addition the rules and procedures of the FINRA arbitration forum were followed.

In the end, D.W. was able to obtain an expungement that was clearly false. D.W. is like all other financial advisors in that complaints are over-reported and are difficult to remove. FINRA continues to tighten their grip on the removal of false BrokerCheck disclosures.

Photo by: Medienstürmer