Expungement of Customer Dispute Information

The CRD record is the industry's permanent disclosure backbone, so expungement is intentionally narrow and procedurally demanding.

What Expungement Removes

The CRD system records customer disputes (complaints, arbitration claims, civil suits) involving registered persons and member firms. Once a disclosure is in CRD, it generally appears on BrokerCheck and follows the AP for the rest of the career.

• Expungement removes the disclosure from the CRD record (and from BrokerCheck), as if the customer dispute had never been reported
• This is different from dismissal of the underlying claim (which resolves the dispute but leaves the CRD entry in place) and from denial of expungement relief (which means the CRD entry stays)
• Because expungement permanently rewrites the disclosure history, FINRA treats it as an extraordinary remedy with strict procedural and substantive prerequisites

The Two-Step Procedural Requirement

To expunge customer dispute information from the CRD system, the member or AP must obtain both:

1. An arbitration award or other order containing expungement relief, AND
2. Confirmation by a court of competent jurisdiction of the arbitration award (or a court order directly directing expungement)

The court confirmation step exists because FINRA does not, on its own authority, remove customer dispute disclosures from CRD. The arbitration panel makes the substantive findings, and the court turns those findings into a binding order that FINRA can act on.

Exam Tip: Gotchas

• Expungement is not granted by FINRA. It is granted by an arbitration panel under one of the three substantive standards AND confirmed by a court. A respondent who simply asks FINRA to remove a CRD entry without a court-confirmed arbitration award has no path to relief.
• Both steps are required; one is not enough. An arbitration panel grant of expungement that is not confirmed by a court does not result in CRD removal. A court order without an underlying arbitration finding (or another order containing expungement relief) is similarly insufficient.

The Three Substantive Standards

An arbitration panel may grant expungement only if it makes an affirmative finding on at least one of the following bases:

Standard (A): Factually Impossible or Clearly Erroneous

The panel finds that the claim is impossible (e.g., the alleged conduct on a date the rep was not employed at the firm) or so far outside the realm of factual support that it is clearly erroneous.

Standard (B): Not Involved

The panel finds that the registered person was not involved in the specific alleged sales-practice violation, forgery, theft, misappropriation, or conversion. This is an objective non-involvement finding, not a finding that the rep "did nothing wrong" or that "the customer's claim lacks merit."

Standard (C): False

The panel finds that the claim, allegation, or information is false. This is the broadest of the three standards but still requires an affirmative finding.

Exam Tip: Gotchas

• Standard (B) is objective and narrow. It requires the panel to affirmatively find that the registered person was not involved in the specific alleged sales-practice violation, forgery, theft, misappropriation, or conversion. A general finding that the broker "did nothing wrong" or that the customer's claim "lacks merit" does NOT satisfy (B). The non-involvement must be specific to the alleged misconduct.
• A panel cannot grant expungement just because the customer's claim was dismissed or settled below the dollar threshold. Dismissal, settlement, or low-value disposition is not one of the three substantive standards. The panel must make an affirmative finding under (A), (B), or (C); a default disposition is not enough.

Required FINRA Joinder in the Court Confirmation

FINRA must be named as an additional party to the court confirmation proceedings and served with all appropriate documents, unless FINRA waives that requirement.

• The joinder gives FINRA standing to oppose expungement that does not meet the CRD-integrity standards
• FINRA may submit briefing, appear at hearings, and otherwise contest the confirmation
• A court order obtained without naming FINRA as a party (and without FINRA's express waiver of joinder) is not enforceable for CRD-removal purposes

When FINRA Waives Joinder

FINRA may waive the joinder requirement only in extraordinary circumstances, in its sole discretion, if it determines that:

• The expungement relief and accompanying findings are meritorious, AND
• Expungement would have no material adverse effect on investor protection, the integrity of the CRD system, or regulatory requirements

The waiver standard is narrow by design. Most expungement requests will require FINRA's participation in the court confirmation.

What Expungement Does Not Affect

Expungement removes the CRD disclosure but does not unwind the underlying arbitration award, customer settlement, or regulatory finding:

• A customer who recovered $50,000 in arbitration keeps the $50,000 even if the rep's CRD entry is later expunged
• A regulatory finding made by FINRA's Department of Enforcement against the rep is not erased by expungement (which addresses customer dispute information, not disciplinary findings)
• The expunged disclosure remains in FINRA's internal records (FINRA can still see it for examination and supervisory purposes); it is removed only from the public CRD record and from BrokerCheck

Exam Tip: Gotchas

• Expungement does not erase the underlying arbitration award, settlement, or customer payout. It removes the CRD disclosure of the customer dispute, not the dispute itself. A rep whose CRD entry is expunged still bore whatever financial consequences came out of the arbitration.
• The expungement requirement covers customer dispute information, not regulatory disciplinary findings. A FINRA bar, suspension, or fine entered by a Hearing Panel is not subject to expungement. Customer dispute information is the narrow universe the requirement addresses.