CRD, U-4 and U-5 Expungements – Can they be done in court?

Traditional wisdom held that the only way to get an expungement of a customer complaint was from a FINRA arbitrator. Since time immemorial, brokers have sought expungements from arbitrators. We have handled a number of these types of expungements. Frankly, we told brokers with old disclosure items (possibly from firms that were no longer in business) that there was nothing that could be done.

We might have been wrong. A recent case in California has held that FINRA can be properly taken before a court and ordered to remove CRD items. This is a sea change in the way things work. According to the opinion, a court always has equitable jurisdiction and the power to order changes to a CRD record.

This case was an appeal from a trial court ruling that only the FINRA Rule 2080(a) standards could apply and that the court did not have the power to apply them. The California appellate court reversed the trial court and held that the trial court has the equitable authority to expunge matters from a CRD record. This upends decades of common practice.

So, what’s in store. It certainly makes sense to seek expungement of “old” CRD disclosure items through a court and see what the court does. I’m thinking that this is going to create a tidal wave of expungement matters in state court proceedings, at least until FINRA changes the rules.

You see, FINRA makes the rules. FINRA tells a broker what they can and can’t do. FINRA may try to short-circuit this process by suggesting a rule that prohibits a broker from suing FINRA in any court for the purpose of getting an expungement. Whether they will be able to get such a rule passed is another issue.

In the meantime, the expungement window may be open.

That’s the unexpunged view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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