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Can an Investment Broker's Record be Expunged in California?

What securities law says about getting rid of petty crimes and complaints

As defined by the American Bar Association, expungement is a legal term used to describe a process whereby a record of misconduct can be “erased or removed completely.” In securities law, there is a specific process in place whereby customer complaints and other records of alleged or misconduct can be removed when certain criteria are met. In this article, you will find a brief guide to when a securities broker’s record can be expunged in California.

Registered Brokers are Subject to Strict Disclosure Requirements

The Financial Industry Regulatory Authority (FINRA) is a self-governing body that regulates licensed securities brokers and registered investment advisers (RIAs). Among other things, FINRA is tasked with protecting investors by ensuring that brokers and brokerage firms operate in an honest and fair manner.

One of the primary ways that FINRA achieves this objective is by subjecting individual investment brokers and brokerage firms to strict disclosure requirements. In effect, most investor complaints and petty crimes that were allegedly committed by a licensed broker can become a matter of public record. Through FINRA’s BrokerCheck tool, prior allegations against a broker can be easily accessed.

FINRA Rule 2080

FINRA recognizes that not all complaints or allegations raised against investment brokers are legitimate. For this reason, an expungement process exists that allows a financial advisor to clear their name and protect their professional reputation. Under FINRA Rule 2080, a securities broker who is seeking a professional expungement related to a dispute with a customer “must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.”

Understanding the Grounds for a FINRA Expungement

As noted previously, FINRA procedures are based, in large part, on the notion that investors deserve access to the background information about their broker or brokerage firm. For this reason, FINRA only allows securities brokers to expunge customer complaints in very specific circumstances. To qualify for an expungement under FINRA Rule 2080, a securities broker must prove one of the following three things:

  1. The allegation, as submitted, is impossible or clearly erroneous
  2. They had no involvement in the underlying securities dispute
  3. The claim or allegation is false

Of course, proving that an allegation is false is more challenging than defending a claim of legal liability. Brokers facing a false allegation from a customer should be prepared to take a proactive approach, so that they can obtain an expungement of derogatory information. If you have any specific questions about getting your professional record expunged, please do not hesitate to reach out to an experienced California securities litigation attorney for assistance. A lawyer will review your case and help you determine the best course of action.

If you’d like to learn more about this area of the law, please see our securities law overview.

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