Walking Through the FINRA Expungement Process

September 24, 2015

Among the most frequent queries I get from potential clients in my law practice is the one involving the expungement of a registered person's Form U4 or Central Registration Depository ("CRD").  What frequently surprises many individuals is the two-part nature of the process; namely, that you typically have to prevail at a FINRA arbitration and, thereafter, obtain a court order. That's twice the cost and twice the time that many had anticipated. A recent expungement case sets out the process in clear and understandable fashion. The BrokeAndBroker.com Blog offers this material as an exercise in what is involved and how long the process may take.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in November 2014, Claimant Scott sought to expunge a customer complaint alleging that he had made unauthorized trades in a customer's account. In furtherance of his claims, Claimant sought a recommendation of expungement, $1 in nominal damages, and fees and expenses.  In the Matter of the FINRA Arbitration Between Vaughan Scott, Claimant, vs. UBS Financial Services, Inc., Respondent (FINRA Arbitration 14-03544, August 4, 2015).

Respondent UBS did not oppose the requested expungement.


In considering the expungement request, the sole FINRA Arbitrator conducted an in-person hearing. The customer had been notified of the hearing but communicated via a voicemail that she did not wish to participate and did not oppose the requested expungement.

In recommending expungement, the FINRA Arbitrator offered this rationale:

Beginning in late 2000, pursuant to a contractual agreement, Scott and Associated Person Jay Nussbaum ("Nussbaum") transitioned business to themselves from Associated Person Howard Linker ("Linker"), who was exiting the industry. Linker was Nussbaum's partner and Scott was a newer person, brought in to replace Linker.

In January 2001, during this latter part of the transition, Scott and Nussbaum called the Customer simultaneously (as Nussbaum was introducing Scott to clients of Nussbaum and Linker) and placed a mutual fund trade with the Customer's knowledge and consent. This was Scott's only interaction with the Customer.

In May 2001, the Customer wrote a letter to Respondent (which was itself transitioning from PaineWebber to UBS), which stated the trade was unauthorized. In the letter, the Customer did not ask for the reversal of the trade. Instead, she asked for a refund of the commission. Scott and Nussbaum testified that they believed Linker told the Customer to request that the commission be waived.

The Customer received confirmations, statements, and a prospectus from Respondent in connection with the purchase, but waited until four months after the transaction to write her complaint letter. In addition, due to this trade, the Customer avoided unrealized losses of $45,000.00 as of June 2001. For these reasons, Respondent denied her request for compensation. The Customer did not seek further remedy and did not file an arbitration claim.

As a result of the above, the Arbitrator finds that the allegation of an unauthorized trade is false under FINRA Rule 2080. Therefore, expungement relief is granted . . .

The Name Game

Having won the recommendation of an expungement, Claimant Scott was then required to obtain a confirmation of the arbitration award from a court of competent jurisdiction as a condition precedent to CRD expunging the subject reference.  In furtherance of that court confirmation, Claimant was also obligated to name FINRA as a party in the court proceedings unless the self-regulatory organization waived the requirement in writing.

Courting Success

Having prevailed at the FINRA Arbitration, Claimant Scott next filed a Summons in the federal District Court for the Western District of Kentucky. In response to a Motion by Scott, the Court issued an Order and Judgment confirming the FINRA Arbitration Award. Vaughan Scott, Movant, v. UBS Financial Services, Inc. - and- Financial Industry Reguatory Authority, Inc., Respondents (Order and Judgment Confirming Award, WDKY, 15-CV-681,August 19, 2015). Pointedly, the Court ordered that:

8. Pursuant to numerical paragraph 1 of the Award, respondents shall expunge from the movant, Vaughan Scott's registration records (CRD #3178836) all references to the customer complaint dated May 7, 2001.

Read the full-text court materials

Bill Singer's Comment

I offer this case and its timeline so as to prepare those who would embark upon the expungement process as to the likely glacial pace by which things may progress and to highlight that you may be personally on the hook for substantial legal fees if you have to shoulder that burden on your own, which you will frequently be doing.

Let me remind you that as of the publication date of this article, it is September 2015 and that the underlying customer complaint was dated May 7, 2001 -- Scott's personal odyssey took over 14 years!

In fairness, Scott first filed for an expungement via FINRA arbitration in November 2014, so he appears to have waited some 13 years before resorting to the legal process. Notwithstanding, it still took him nearly 10 months from the date of initiating his FINRA arbitration until such time as a federal court confirmed the expungement -- and there is no telling when CRD will actually get around to implementing that Order. Keep in mind that both the customer and Scott's former employer did not oppose his request for expungement; if either or both parties did oppose, the process would have taken considerably longer and the recommended expungement may not have been forthcoming depending upon what the Arbitrator heard, reviewed, and decided.