Articles Posted in Employment Issues

Brokers can end up with unwarranted customer complaints, arbitrations, terminations, and other adverse disclosures on their CRD for reasons beyond their control. While plenty of investors have a legitimate “beef” against their investment professional, some people vet illegitimate or unwarranted frustrations by filing complaints to a broker’s employer or FINRA and it can stay with a broker and hurt his career forever. Sometimes, the brokerage firm, the market or other external forces are actually at fault for the customers’ losses, not the broker. Some customer complaints could be emotional or financially driven rather than rational. Similarly, firms sometimes have “ulterior motives” in terminating and reporting a termination of an investment professional, which could be false and lead to a FINRA 8210 inquiry, investigation or disciplinary hearing, as well as hurt future employment potential forever.

The CRD, short for Central Registration Depository, is the online registration and licensing system FINRA uses as their database for broker records. Potential customers, regulators, and employers have access to most of the CRD’s information through FINRA’s publicly available online resource, BrokerCheck. Customer disclosures permanently show on the CRD irrespective of a broker’s actual culpability for the alleged misconduct. It can negatively change a broker’s career forever.

Frivolous marks on a Form U5 can damage the stellar reputation any well-intentioned brokers craft after years of successful securities industry experience. Fortunately, in the appropriate circumstances, brokers can have marks removed from the CRD in FINRA arbitration or court proceedings. The experienced expungement attorneys at Malecki Law can help brokers pursue removal of negative customers disclosures FINRA arbitration proceedings. It is more difficult, expensive, and time-consuming for investment professionals to pursue expungement requests in courts with FINRA as an adverse party, but an investment professional can file in court as well.

When you are placed on administrative leave, it can seem like the world is collapsing around you.  It might be, but how you respond and hiring counsel could change the outcome.  Before making any rash decisions, it is important to understand just what has happened, what is likely to happen next, and what you should do about it.

What is “Administrative Leave”?

Administrative Leave is a form of suspension from the workplace, often pending the outcome of some form of investigation.  In the securities world, this can be the case if there is an investigation into a suspected compliance infraction, a customer complaint, a regulatory or self-regulatory investigation or inquiry, an arrest, charge, indictment, or complaint made against a broker or its firm (a FINRA “Member” firm).  Each firm may have its own policies and procedures for how to determine whether administrative leave is necessary, what specifically constitutes administrative leave, or at what point it is imposed.

It takes a lot of courage to report illegal or fraudulent misconduct by one’s own employer.  This is because being a whistleblower carries significant risks.  Whistleblowers not only risk their current employment, but possible ongoing retaliation that can harm their industry reputation and ability to find work with employers in the future.  Reporting wrongdoing can also invite significant emotional hardship and threats to one’s personal safety.  So why would anybody want to be a whistleblower?

For most with a moral compass, often doing the right thing is reward enough.  But there are an increasing number of laws, which now provide additional incentives – both in terms of anonymity and financial remuneration.  Depending on where one lives in the United States, there are various state whistleblower laws that could apply.  Federal laws tend to provide the most financial incentive, and in particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which was signed into law in 2010, as a measure to address the 2008 collapse of the financial services market.

Dodd-Frank was a notable expansion on pre-existing federal whistleblower laws for several reasons.  The earlier Sarbanes-Oxley Act of 2002 (SOX), which was a measure in its own right to address the failings that led to the 2001 financial crisis, provides civil protections to employees (including officers or subcontractors) of a publicly traded company against any kind of retaliation by the employer.  While SOX has led to multi-million-dollar financial verdicts for the whistleblower, Dodd-Frank expanded eligibility of who could become a whistleblower, from employees under SOX, to anybody.  Section 78u-6(a)(6) of Dodd-Frank defines a whistleblower as follows:

Can I Sue My Brokerage Firm for Filing a False Form U5?

Financial firms that deal in securities do carry legal liability for filing a Form U5 with false information, and financial advisors can indeed sue their former firms for filing an inaccurate Form U5.

Whenever a brokerage firm terminates the employment of a broker or financial advisor, the firm must file a Form U5 – the Uniform Termination Notice for Securities Industry Registration – with the Financial Industry Regulatory Authority (FINRA) within thirty days of termination.  The Form U5 is differentiated from the Form U4 – the Uniform Application for Securities Industry Registration or Transfer – which is filed upon a broker’s registration with a firm, whereas the Form U5 is filed upon the broker’s termination. The Form U5 requires a firm to provide accurate answers to various questions, including the reason for a broker’s termination.

compass-rose-1444702-300x225From Deutsche Bank to Credit Suisse and Barclays, brokers are in transition for a variety of reasons – some voluntary and some obligatory.  Either way, for a FINRA registered representative, leaving their broker-dealer can be a nerve-wracking time.  Regardless of the reason for leaving, the ultimate goal is always the same: get to your new firm and bring with you as many clients as you can without getting sued by your old broker-dealer in a FINRA Arbitration.

But, easier said than done.  In addition to the logistical challenges, there are also some legal hurdles that must be cleared first.

The first major question that should be asked is: “Does the Protocol for Broker Recruiting apply?”  If either your old firm or new firm are not signatories to it, then your answer should be “No.”  If both your old firm and your new firm are signatories to it, then the answer to that question should be “Yes” – but some restrictions may apply.

Brokers beware; FINRA is watching your firm, and you.  Becoming embroiled in a regulatory inquiry or investigation can become a major and costly headache and impediment to registered representatives’ business.

In January 2016, the Financial Industry Regulatory Authority (FINRA) released its annual list of priorities, showing what sorts of sweeps they may perform, and investigations they may bring, in the coming year.  brokers working in the securities industry should be aware of the priorities that are relevant to them, including those having to do with sales practice.

FINRA’s 2016 Priorities make clear that they intend a top-down review of the following areas, which may lead to firm-wide or broker specific investigations, including:

benjamin-1239799-300x200Thinking about leaving your broker-dealer?  Looking to make the transition to a new firm?

It has been reported recently that brokers from Credit Suisse, Deutsche Bank and potentially Merrill Lynch are being heavily recruited to leave and join new broker-dealers.  For those leaving Credit Suisse, Deutsche Bank, and Merrill (as it is for any FINRA registered representative) the choice to move to a new broker-dealer is not one that is made lightly.  Whether a protocol move or a non-protocol move, many of the same issues remain at the forefront and need to be dealt with judiciously.  One of these issues is the transition bonus/promissory note.

If you are fortunate enough to have a substantial book of business and significant gross production, you may have been offered an upfront transition bonus by a new broker-dealer.  Frequently, these bonuses are awarded to reps in the form of Forgivable Promissory Notes.  The basic structure of these “Notes” is as follows:  The “bonus” is structured on paper as a loan.  Over a set time period – usually five to seven years – the balance of the loan, including interest, is paid off or “forgiven” by the broker dealer.

Today, Ms. Malecki was extensively quoted in the FundFire story titled MSWM Goes to Court to Get Former FA to Pay Back Loans. 

This story is focused on Morgan Stanley’s attempt to go to court to make a former advisor pay-up after FINRA arbitrator granted them a million dollar reward in a promissory note dispute case. Ms. Malecki, who has extensive and relevant experience with securities industry employment dispute cases opined that “it is common for wirehouses to pursue awards through FINRA arbitration when advisors leave the firm but don’t repay outstanding promissory notes” and this happens more often when markets are bad. The detailed story is available on the FundFire website at http://bit.ly/1ZAPssh

FundWire

A number of senior management with UBS Puerto Rico were terminated late last week, according to sources.  It is believed that individuals from marketing, investment banking, lending and other areas of the bank’s operations on the island were all let go. Read the recent report by Reuters on this here.

Consistent with industry custom, those who were let go were reportedly offered a severance package which they have roughly two to three weeks to accept or reject.  Since these packages are usually contingent upon a general release of liability (meaning that the individual cannot sue the firm), for those individuals who were offered packages, there are likely a number of factors that should be considered before deciding to accept or reject.  Once a general release is signed, virtually all claims for monetary damages that could have been brought before are then lost forever.

For anyone, being fired is a major life event.  For licensed professionals, being fired comes with the potential for an additional life-changing of having a mark on their license in connection with their termination.  If you are a licensed professional and are asked to sign an agreement, whether or not you have any intention of filing an action or any possibility of a FINRA U5 issue, it is always wise to seek the advice of a lawyer to learn about both your rights and what you might be giving up before you sign anything.  Once you sign, it is too late.  This is not the time to be “penny wise and pound foolish” – this is the time to consult with counsel to make informed decisions.  Many lawyers provide free consultations.

“My broker dealer wants me to meet with its lawyers.”  This is the start of a FINRA registered representative’s worst nightmare.

Your heart is pounding and your head starts to race.  “Why me?” “What do they want to know?”  “What could I have done?”  “Are they going to ask me about the XYZ account?”  “I’m sure that I did everything right and by the book, didn’t I?”

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If you did do something that may have been a violation of the law, FINRA Rules, or the firm’s manual, you will likely begin to think about the potential punishment (fine, suspension, termination) even before you hang up the phone or close the door to your office.  Once an investigation into your conduct starts, you are not able to leave with a “voluntary” termination, but at best would be “permitted to resign during a firm investigation.”