Articles Posted in Employment Issues

Many clients are asking, “can my arbitration hearing be done online by video?” The answer is yes.  FINRA allows for remote hearing services, via Zoom and teleconference, to parties in all cases.  In arbitration, all parties can agree as to almost anything and FINRA will allow it – such as who the arbitrators are, methods of picking arbitrators and/or how the hearing will happen.  The trick is to get your adversary to agree to alternative hearing methods or to get a sitting arbitration panel to order (force) your adversary to do it. A hearing can happen a number of ways with FINRA’s blessing, so long as it can be recorded.  Next week, we expect that FINRA will set out more formal guidelines and we will update this blog in a new post.

Zoom is a user-friendly video platform that provides high-quality and secure options for conducting remote hearings.  The platform allows parties, arbitrators, counsel, and witnesses to share documents and their screens with other participants.  Zoom is a viable option for parties unable to attend an in-person hearing. Malecki Law’s FINRA arbitration attorneys have experience and systems in place, ready to use this method for hearings in investor arbitrations, as well as industry employment and regulatory matters.  For many years, remote witnesses have participated and testified via video and telephonic methods.  It is really not a completely new concept.

Whether the hearing is remote or in-person, the prehearing process will not be hindered.  In customer dispute cases, where customers bring claims against their broker and/or broker-dealer, all aspects, except for an in-person hearing, are done remotely (such as filing the claims, resolving discovery disputes, and interviewing witnesses).  As a matter of fact, most claims against a broker and/or broker-dealer will settle before the hearing is scheduled to begin.

As we have been saying in this space for many years, getting a Rule 8210 Notice from FINRA can be a jarring event.  If you have received an 8210 notice, you should take it seriously, as well as immediate steps to develop your best course of action to comply with the request. An 8210 Notice is a subpoena from FINRA that is typically sent to registered representatives in connection with an informal inquiry that does not have to be reported on your form U4. When you first receive an 8210 notice, FINRA is likely trying to determine if there have been any violations of securities and/or industry rules and/or regulations.  You should notify your compliance officer, as they will likely have already received a copy from FINRA, but being transparent is important.

It is important to meet with an attorney as soon as possible to determine the best ways in which to protect your interests during the process.  All involved parties will not necessarily share the same interests, i.e., your firm and/or supervisor may have their own self-preservation interests.   As part of the 8210 notice, you will be required to answer a list of questions (interrogatories) and produce sometimes a wide range of documents, both business and personal.  The attorneys at Malecki Law are experienced in defending FINRA registered representatives and firms in FINRA disciplinary matters and can work with you in responding to interrogatories and assist you with your document production using state of the art electronic discovery tools.

In working with your attorney to respond to interrogatories and produce documents you should also start to prepare for a potential “on the record” interview (or “OTR” for short).  OTRs before FINRA involve sitting in a conference room with investigators and answering their questions under oath.  You should have your attorney prepare and accompany you to an OTR. While not all cases involve an OTR, many do.  Experienced counsel will know the best way to couch what happened with the right language and explanation.  Furthermore, it is important to identify and explain mitigating circumstances as soon as possible before enforcement decisions are made.

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.

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.

From 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:

Thinking 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.

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