The End Of An Era — How FINRA Finally Succeeded In Destroying The Presumption Of Innocence

In the realm of customer dispute expungements, the winds of change are blowing. FINRA, the venerable regulator that has long overseen the industry’s disputes, has finally unleashed its most audacious action yet — a seismic shift that jeopardizes the very presumption of innocence that advisors have held dear. 

Effective October 16, 2023, expunging customer dispute disclosures through FINRA’s Dispute Resolution Forum is officially “DOA.” The upcoming implementation of Regulation 23-12 marks the end of an era, and its implications are staggering. The new rule will render the attainment of expungement a Herculean feat. It will transform FINRA’s process into a labyrinthine ordeal, laden with hurdles so high and costs so exorbitant that it threatens to reshape the very fabric of advisor-client dynamics. 

Following the SEC’s approval, FINRA’s nearly six-month delay in implementing this rule change speaks volumes. But given how appallingly one-sided and excessive in quantity the changes were, it should be no surprise that even FINRA had difficulty gutting its own expungement process for its “member” advisors.

The once-straightforward path to clearing one’s record has been obliterated — replaced by a thorny landscape ruled over by a panel of three arbitrators drawn from a “Specialized Arbitrator Roster.”

Of the changes to FINRA’s expungement arbitration process being implemented by Regulation 23-12, here are the most striking:

  1. Direct requests must undergo evaluation by a three-member panel of FINRA arbitrators, chosen randomly from a list of well-versed public arbitrators who have received specialized expungement training. That list is known as the Specialized Arbitrator Roster.
  2. Parties cannot settle for fewer than three FINRA arbitrators; they may not dismiss any chosen arbitrators; nor do they have the option of selecting arbitrators to which all of the parties to the matter have stipulated.
  3. State securities regulators will be notified of all customer dispute expungement appeals, and those state entities have the means to attend and partake in hearings for direct requests.
  4. Direct requests have strict submission deadlines of two or three years, depending upon the facts. The overwhelming majority of older disputes will no longer have access to the expungement process through FINRA.
  5. The Notice to Arbitrators and Parties on Expanded Expungement Guidance is both codified and updated. It introduces more requirements for expungement hearings, ensures customer presence and involvement in all hearing stages, and codifies the panel’s right to request pertinent evidence.
  6. In order to grant an award inclusive of expungement relief, the panel must unanimously concur.

Even if an advisor were to somehow meet the Draconian criteria to request customer dispute expungement, an often-overlooked element of these rule changes, as stated in SEC Release No. 34-97294, is that “Proceedings have costs[,] and it is appropriate that FINRA would require the parties generating those costs to pay them.”

How much will FINRA customer dispute expungement cost under the new rule?

In essence, FINRA arbitrators will levy the Member Surcharge and member processing fees (currently paid by broker-dealers) onto the representatives requesting expungement. As per FINRA Rules 13901(c) and 13903(c), these fees amount to $2,000 and $3,850, respectively. Additionally, FINRA’s hearing session fees stand at $1,150 for each hearing session (Rule 13902(a)(4)).

Assuming that the process entails a single IPHC hearing, one motion hearing, and a singular merits hearing, the minimum probable hearing session fees against the representative will reach approximately $3,450. Adding the advisor filing fee of $1,600 (Rule 13900), a representative seeking expungement could potentially face at least $10,900 — solely in FINRA forum fees!

Urgency In Action — Your Chance To Act Before October 6th

Time is of the essence, and at AdvisorLaw, we’re prepared to lead the charge in this battle for advisors’ rights. With the October 16th deadline looming, we understand the urgency to act swiftly and strategically. Our team of seasoned experts, who are well-versed in the intricacies of FINRA’s ever-evolving landscape, is here to guide you through this complex terrain. We’ve witnessed the tides of change in the past, and we’ve successfully steered countless advisors through turbulent waters.

Don’t let meritless, false, or clearly erroneous disputes tarnish your hard-earned reputation any longer. Our proven track record speaks volumes — we’ve long championed advisors seeking justice against unfair allegations. With AdvisorLaw in your corner, you’re not facing this challenge alone.

We’re extending a limited-time opportunity for you to seize control of your record before it’s too late. Until October 6th, 2023, we’re offering our expertise to meticulously prepare and file your case under the existing, more favorable rules. These grandfathered rules could be the key to preserving your credibility in a rapidly shifting landscape.

As the industry braces for an impending surge of expungement requests, it’s imperative that you secure your spot now. The demand is skyrocketing, and we’re here to make sure that your voice is heard — loudly and clearly. 

Reach out to us today to reserve your place in the vanguard of this transformation. Let AdvisorLaw empower you to reclaim your innocence and safeguard your professional legacy. The time to act is now.

Learn more about our disclosure expungement services here. For a complimentary consultation, give us a call today, at (303) 952-4025. Or simply fill out the contact form below, and someone will be in contact with you within 24 hours. 

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