11.3 Mediation and Customer-Dispute Expungement

FINRA Mediation

Mediation under the FINRA 14000 Series is a voluntary, confidential, nonbinding process. A neutral mediator helps parties identify interests, evaluate risk and negotiate, but cannot order a result. Any party may end the process, and no settlement exists until the parties agree and document it.

Mediation can occur before or during arbitration. The parties should confirm how deadlines, discovery and hearing dates will be handled; starting mediation does not justify assuming another deadline has stopped. If settlement occurs, the agreement addresses payment, releases, dismissal and costs. It must not prohibit truthful regulatory communication, required reporting or cooperation with authorities.

Why Expungement Is Different

Customer-dispute information reported to CRD and shown through BrokerCheck serves investors and regulators. Expungement is an extraordinary remedy that removes specified customer-dispute information from the associated person's record; it is not ordinary settlement language and cannot be granted by a firm or customer acting alone.

Rule 2080's findings focus on whether:

1. the claim, allegation or information is factually impossible or clearly erroneous;
2. the registered person was not involved in the alleged investment-related sales-practice violation, forgery, theft, misappropriation or conversion; or
3. the claim, allegation or information is false.

The arbitrators must explain the grounds and reasoning in the award and address settlement documents and amounts where applicable.

Current Special Proceedings

Rules effective October 16, 2023 strengthened the process. A straight-in request—one filed separately rather than decided in the underlying customer arbitration—generally proceeds before a randomly selected three-person panel drawn from the Special Arbitrator Roster. Parties do not strike or stipulate to remove these arbitrators. The request is subject to strict time limits and is ineligible in listed circumstances, including certain prior adjudications or withdrawals.

State securities regulators receive notice and may participate. The customer also receives notice and may participate, provide documents and appear. The panel must agree unanimously to recommend expungement. Settlement or a customer's decision not to oppose does not lower the standard.

Court Confirmation and FINRA Participation

An associated person generally must obtain a court order confirming an expungement award and name FINRA as a party, unless FINRA waives that requirement under Rule 2080's process. The court step is not clerical permission to alter CRD before confirmation. The firm should route the award and court documents through registration and legal personnel and make changes only under authorized procedures.

Principal Responsibilities

The principal should preserve the underlying complaint record, continue regulatory reporting, and investigate conduct regardless of a settlement or expungement request. No one should pressure a customer not to participate, offer undisclosed consideration for non-opposition, or describe expungement as guaranteed. The firm must keep Forms U4 and U5 accurate until lawful expungement is complete.

Expungement Eligibility Controls

A straight-in request is filed as an industry claim against the member firm where the associated person worked when the dispute arose (Rule 13805), and current rules impose strict limits. The request is untimely if more than two years have passed since the related customer arbitration or civil litigation closed or, when there was no arbitration or litigation, if more than three years have passed since the customer complaint was first reported to CRD. It is barred if a panel already held a merits hearing on expungement of the same information, a court previously denied it, the underlying arbitration, litigation or complaint is still open, a panel or court found the associated person liable in the related customer case, or the information involves the same conduct as a final regulatory action. Before supporting or reimbursing a request, the firm should confirm procedural eligibility, preserve the complete underlying case and identify any conflicts between the firm's interests and the associated person's. Reimbursement must not purchase customer nonparticipation.

At a hearing, the panel considers the customer's position even when the customer does not attend and reviews settlement documents rather than treating a negotiated payment as proof of falsity. The associated person bears the burden of proving the narrow grounds. An award recommending expungement is not itself permission to delete a complaint from internal records.

Mediation Practice

A useful mediation statement distinguishes agreed facts, disputed facts, damages and nonmonetary interests. The mediator may hold private caucuses, test assumptions and carry proposals, but confidentiality and admissibility follow the governing rules and agreement. If no resolution occurs, arbitration preparation continues without retaliation against a customer for rejecting a proposal.

Registration staff should monitor the case through the final court order and verify exactly which occurrence and disclosure are covered. Other related disclosures remain unless separately authorized, and internal complaint and supervision records continue under their own retention rules.