Brokerage Firms May File Inaccurate U5s to Ruin Former Securities Employee Records, According to Bloomberg Article

Brokerage firms may sometimes use reporting inaccurate negative information on a departing securities employees’ U-5 records as their “weapon” to keep their customers, according to a Bloomberg article. FINRA records and broker experiences show that brokerage firms occasionally include inaccurate information when filing a Form U-5. While financial advisors and brokers can file an arbitration to have employers remove the erroneous information from their record, many take no action. Securities employment attorneys are unsurprised given that broker and financial advisor cases against the employer, tend to favor big brokerage firms heavily. Financial professionals fear the high cost, time loss, and difficulty getting expungement in a FINRA arbitration.

Brokerage firms provide information regarding an existing employee’s termination in a document entitled, Uniform Termination Notice for Securities Industry Registration Notice – Form U-5. Within 30 days of the broker’s termination, the brokerage dealer must file a Form U-5 with the Financial Industry Regulatory Authority pursuant to Article V, Section 3 of the FINRA by-laws. A Form U-5 seeks information pertaining to the circumstances around a respective broker’s termination from the firm. Brokerage firms are obligated to provide accurate, and timely information as well as file any changes on the U5, according to FINRA’s Regulatory Notice 10-39.

It is important to contact a FINRA securities attorney when you first realize that you may be terminated or when you are terminated, to act fast. While a Form U-5 is not “negotiable,” a broker can provide information to the firm to change the firm’s mind on the facts, as well as tell them facts that they may not know. It is worthwhile to try doing so before the filing, as after the filing firms are hesitant to change a U-5 as regulatory agencies could start asking questions regarding the reasoning. No firm wants FINRA regulatory to come knocking on their door.

Information that the brokerage firm files on a Form U-5 will be transferred to a broker’s CRD and publicly accessible to customers on BrokerCheck. Therefore, the exact words chosen for inclusion on a Form U-5 will have a massive impact on a broker’s career and livelihood. Our U5 expungement attorneys understand how the wrong words can ruin a broker’s record, career, and future. For this reason, the battle to seek expungement could still be worthwhile, especially for employees that plan to continue a career in the securities industry.

FINRA arbitrators have the power to grant the broker expungement of the defamatory U-5 records as well as award compensatory damages. However, FINRA arbitration panels rarely award monetary damages, even with the high costs of pursuing expungement against large firms. Industry data shows, that of the 82 FINRA arbitration cases with claims that employees filed U-5s with inaccurate information regarding their termination only 8 received monetary damages despite 56 resulting in wins for brokers. These 82 FINRA arbitration cases filed between 2016 and March 2018 do not even include the hundreds that were settled or withdrawn. Markedly, the arbitration expungement proceedings tend to punish the broker-dealer for actions taken against the broker hardly.

Nonetheless, expungement is indeed still feasible, especially with the best securities employment attorneys.  The Bloomberg article speaks with broker Dale Cebert who spent 2 million dollars in fees to have damaging U-5 comments from his former employer, Morgan Stanley removed from his record. Ultimately, the FINRA arbitration awarded Cebert $2.6 million in monetary damages and expungement, finding Morgan Stanley culpable for defamation. Cebert believes that Morgan Stanley making false marks on a broker’s record to steer away clients is not so uncommon. While unfortunate, brokerage firms smearing former employee records intentionally appears to be an issue that runs rampant within the securities industry.

Despite the odds, financial advisors should still seek expungement if they intend to continue their career in the industry. It is important to have a securities employment attorney with substantial knowledge on FINRA rules and industry standards for getting damaging words removed from a broker’s records. Our securities employment lawyers have helped numerous broker clients win expungement in FINRA proceedings. Recently, a FINRA panel recommended expungement for 28 negative disclosures on Malecki Law client broker records. Brokers who believe that their broker-dealer placed inaccurate marks on their Form U5, should contact our expungement lawyers for a free consultation.


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