Even the best broker-dealers and regulated securities professionals are bound to be the subject of at least one customer complaint over the course of their careers in the industry. Many of those complaints are groundless or filed by investors who have unreasonable expectations. Because they are visible to the public through the Central Registration Depository (CRD) system, though, even the most absurd customer disputes can damage a broker-dealer’s reputation.
Getting these disputes and bad reviews expunged is extremely important.
However, the Financial Industry Regulatory Authority (FINRA) keeps a wary eye on the expungement process. It is worried that making expungements too easy would lead to any negative review getting removed from public view. This would pose a risk to investors who are performing their due diligence on broker-dealers as they decide who to entrust their savings to.
The compromise struck between these competing interests by FINRA and the U.S. Securities and Exchange Commission (SEC) is a complicated one that individual broker-dealers and their brokerage firms need to be familiar with. The FINRA defense and broker-dealer compliance lawyers at the national law firm Oberheiden P.C. can guide you through the process.
Customer Complaints are Common in the Securities Industry
All investments carry risk. Even the safest investments have the potential for losing money. There is simply no such thing as a risk-free investment.
However, not all investors seem to realize that fact. When they work with a broker-dealer and invest their assets in securities only to see them lose value, they may blame their broker. As a result, it is not uncommon for highly-skilled, well-meaning securities professionals and investment managers to get accused of negligence, deliberate misconduct, or even outright sabotage by their dissatisfied clients and former clients. Some disgruntled clients will even blame their brokers when their investments do not pay off fast enough or fail to provide an unreasonably high rate of return.
Unfortunately, the complaints that these investors make become a part of the CRD. The information in these disputes must get added to the database under the law, and get added without an investigation into their veracity or reasonableness. Completely groundless customer complaints – even complaints that clearly have no grounds in the truth – get added to the CRD, even if there are signs that they are maliciously being reported to hurt the broker-dealer’s reputation.
Other interested investors and even members of the public can use BrokerCheck, a free tool to scour the information on CRD, to get lots of information about regulated broker-dealers. This includes customer complaints.
These potential customers may not be able to see through the spiteful nature of these complaints, and may take their business elsewhere, as a result.
It is Possible to Get Complaints Expunged to Preserve Your Reputation
Knowing the dilemma that broker-dealers face, FINRA offers the opportunity to get these complaints expunged and hidden from your public record. Expungement requests are governed by FINRA Rule 2080 and, to a lesser extent, Rule 2081.
Under Rule 2080, FINRA needs to receive a court order before it will expunge the record from the CRD system. To get a court order, a broker or his or her brokerage firm needs to pay a fee and either:
- Request FINRA’s arbitration forum to hear the claim for expungement and then, if the arbitrators recommend expungement, take that decision to court to get a court order, or
- Take the expungement claim straight to court, bypassing FINRA’s arbitration panel.
Brokers or firms may be opposed during the court case by FINRA. FINRA agents may urge the court to refuse to expunge the complaint, offering evidence that FINRA’s rules support the continued existence of the negative record.
However, FINRA may expedite the expungement process or waive participation in the court process if the agency finds that the request aims to remove a claim that:
- Is factually impossible, clearly erroneous, or false, or
- The broker-dealer making the expungement request was not involved in the conduct at issue.
Broker-dealers requesting an expungement can petition FINRA to waive participation in the court case based on one of these grounds by filing a FINRA Rule 2080 Waiver Request Form. FINRA representatives will review the petition to see if either of these grounds are satisfied and if the agency’s time would be wasted intervening in the case and challenging the issuance of the court order.
If the expungement request is approved by the court, FINRA is bound by the order.
Rule 2081, meanwhile, forbids compensating complaining customers in order to get the complaint expunged or removed.
Loophole Tightened on So-Called “Straight-In” Requests
A common practice in the past that let broker-dealers circumvent the most onerous parts of the expungement process has been what has been called a “straight-in” request for expungement.
In a straight-in request, the broker would file a claim for arbitration against his or her own brokerage house to expunge the customer complaint. State regulators, FINRA, and the customer who made the complaint would not be notified of the expungement request.
In May, 2022, FINRA proposed a rule that would drastically limit the efficacy of this loophole around the scrutiny in the expungement process and, in April 2023, the SEC approved the proposal. The new rule:
- Notifies regulators and the complaining customer of the request for expungement
- Requires the broker to appear in person or via video conference
- Makes brokers file their expungement request within three years of the complaint’s initial report or, if the complaint triggered arbitration or litigation, within two years of the culmination of that dispute resolution process
- Requires hearing panels in straight-in requests to consist of three members with enhanced expungement training
While these straight-in expungements are still possible, the new rule has drastically reduced the number of them that are filed by making the evidentiary showings just about as difficult as going the traditional way and obtaining a court order.
Several Frequently Asked Questions About Oberheiden P.C.’s FINRA Practice and Expungements
How Important is it to Keep FINRA from Participating in the Court Case?
If you have managed to convince the panel of arbitrators that the customer complaint should be expunged, your next step should generally be to file the petition with FINRA to urge the agency to stay out of court when you request a court order. Taking this step is important because, if successful, it makes obtaining the court order fairly straightforward as it will be largely unchallenged.
However, convincing the agency to waive participation in the court process is not easy. FINRA agents have to be persuaded that the complaint is completely and utterly without merit – either the complaint is patently impossible or concerns conduct that the broker-dealer had no part in.
Unfortunately, many customer complaints are so vague and broadly-worded that it can be difficult to prove either of these requirements. The very nature of imprecise and generalized grievances can make them difficult to prove false or even to show who they are about.
What Does it Mean to Be a “National Law Firm”?
Oberheiden P.C. is a national law firm. While our firm is headquartered in Dallas and Houston, Texas, we have regional law offices in many major cities across the United States. This means we have experienced legal personnel that can help you expunge a complaint from the CRD system no matter where you practice.
Why Should I Count on Oberheiden P.C.?
There are many reasons to count on the legal representation and guidance that Oberheiden P.C. provides. When it comes to expunging complaints against broker-dealers and their brokerage firms, the experience, attention to detail, and insider knowledge of the industry stand out.
First, Oberheiden P.C. is a firm of senior-level lawyers. We all have extensive experience helping securities professionals deal with FINRA and the SEC.
Second, that experience endows our work product with a rigorous attention to detail that we can only achieve because Oberheiden P.C. is a firm solely of senior-level attorneys. We do not have junior associates or paralegals to handle the routine matters of your case. Everything is performed by an attorney with numerous years of experience expunging complaints from the CRD system. This ensures that details do not slip past unsuspecting or inexperienced eyes, to your detriment.
Third, before joining Oberheiden P.C., many of our senior lawyers and investigators worked within securities-related federal agencies, including the SEC, FINRA, and the U.S. Department of Justice (DOJ). We know how things can escalate in a case because we have experience escalating them as law enforcement officers.
Why Don’t You Call Oberheiden P.C. the Best FINRA Defense Firm?
We do not like making statements like these about our own firm. Not only does it sound tacky, but we also think that we do not have to, given the track record of successes that we have in similar cases and the testimonials that our prior clients have left about the legal services that we have provided them.
FINRA Attorneys at Oberheiden P.C.
The FINRA investigation, compliance, and defense lawyers at the national law firm Oberheiden P.C. know how badly a customer complaint can wreak havoc on a regulated securities professional’s life. It is impossible to tell how many potential clients were deterred from choosing a broker because of a malicious or groundless complaint.
Getting the offending review out of the public’s eye as soon as possible is paramount. While the steps necessary to get it expunged may be difficult, they are worth the effort.