Employment Issues

Post Summer Transitions: Industry Tip #1 – Beware of the Non-Compete Clause

September 3, 2024 | Adam G. Schreck

As the summer winds down and employees begin contemplating transitions to a new employer, financial professionals must be aware of the rules, procedures, and contracts impacting a potential transition to a new firm. To help keep financial professionals apprised of important considerations when changing employers, Malecki Law, one of New York’s experienced financial services employment law firms, created the Post Summer Transitions blog series. This blog will focus on one of the most important considerations impacting most transitioning employees regardless of the industry: non-competition agreements.

On August 20, 2024, Judge Ada Brown, sitting in the United States District Court for the Northern District of Texas, Dallas Division, issued an opinion and order setting aside the Federal Trade Commission’s (the FTC) recently implemented Non-Compete Rule, which was set to effectively outlaw non-competition agreements across the country in early September 2024. Judge Brown’s ruling is sure to impact employees working in nearly every industry and cause the FTC to rethink its approach to curbing unfair methods of competition in the context of employment relationships.

On April 23, 2024, the FTC announced a new, final rule banning most non-competition agreements nationwide. In announcing the new rule, FTC Chair Lina M. Khan explained that “noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism.” Further, the FTC expected the new rule to generate tens of thousands of new patents and thousands of new businesses each year, as well as allow the average employee to earn additional compensation amounting to more than $500 per year. The Non-Compete Rule was slated to take effect on September 4, 2024. If you are a financial professional who is experiencing non-competition issues with a previous employer, you should consult a seasoned Securities Employment lawyer, like the ones at NYC’s Malecki Law.

Malecki Law Obtains Second Favorable Industry Expungement Award In As Many Months

July 29, 2024 | Malecki Law Team

On July 29, 2024, a FINRA Arbitration Panel issued a favorable award to a former registered representative of a broker-dealer represented by Malecki Law, Malecki Law’s second favorable expungement award of the 2024 Summer. The securities industry has increasingly become a “one strike, you’re out” sector, but retaining experienced Expungement Counsel, like Malecki Law, can help financial professionals correct the record when a previous employer misrepresents the circumstances of their employment termination.

Whenever a registered financial professional is terminated or otherwise transitions away from employment with a FINRA member firm, such member firm is obligated to file a Form U5 with FINRA containing mandatory disclosures about such termination or transition. Firms are obligated to file a Form U5 within 30 days after a registered representative is terminated from the firm. The information disclosed on a Form U5 is typically available to the public via BrokerCheck, but registered representatives are seldom given the opportunity to review or comment on Form U5 language before filing. If false or defamatory information is included on a registered representative’s Form U5, the registered representative’s only recourse is to file an arbitration claim for expungement with FINRA.

Malecki Law’s recent expungement award relates to a registered representative who was terminated for allegedly violating a firm’s and FINRA’s outside business activity policy. The registered representative was a dedicated, diligent employee, who routinely went out of their way to do right by their firm. Eventually, the registered representative received an employment offer from a company in the field in which they had always dreamt of working. The registered representative accepted the offer and submitted their resignation to their FINRA member firm, indicating that they were moving to a firm outside of the securities industry. Rather than accept the resignation, the member firm asked the registered representative to remain at the firm for an additional two months to aid in the transition. After receiving approval from their new company, the registered representative agreed to stay at the firm in a limited capacity to help with the transition for a substantial cut in their pay. If false, misleading, or defamatory language has been filed on your Form U5, you should consult a seasoned Securities Arbitration Attorney, like the ones at Malecki Law in New York City, to see if you have a viable expungement claim.

Defamatory Form U5 Language Deters Investment Firms from Hiring Registered Representatives – Malecki Law Obtained a Favorable Award

June 21, 2024 | Malecki Law Team

The securities industry has become known for its “one strike and you’re out” mentality around Form U4 and U5 “marks” resulting from termination and customer complaints. FINRA Rule 4111 makes firms report employee U4/U5 “mark” statistics firmwide and formerly “explainable” situations are now acting like bars to employment in the industry. Unfortunately, this means that even good, honest registered representatives can face prejudice purely because of erroneous documentation, or defamatory language, particularly from former employers. If you are a registered representative that has faced unnecessary hardship because of false documentation or defamatory language from an employer, you should contact a securities law attorney, like the lawyers at Malecki Law in New York, to review your case.

The Form U5 is a form that contains mandatory disclosures, which discloses why a registered representative leaves an investment firm. The Form U5 is available to prospective firm employers, and certain U5 disclosures must also be posted on BrokerCheck, which is publicly available. Investment firm employers generally review the Form U5 of prospective employees meticulously, especially the “Reason for Termination” section. Language used by a former employer in this section, however minor, may have a significant impact on the future employer’s hiring decision. There have been 195 defamatory FINRA cases in 2023; 104 of which, were Form U5-based disputes.

Malecki Law recently obtained a favorable FINRA arbitration award in an intra-industry matter, O’Keefe v. UBS Financial Services, Inc. Malecki Law’s attorneys Jacqueline Candella, and Adam Schreck represented Claimant registered representative O’Keefe. Associates Candella and Schreck tried the case at an in-person hearing in New York City. O’Keefe requested that his Form U5 be amended to reflect his voluntary termination from his previous employer, and to expunge the false and misleading “Termination Explanation.” The Chairperson granted Claimant’s request, explaining that the expungement was, “based on the incorrect and defamatory nature of the information,” written on the Form U5. If you were faced with a similar Form U5 issue, you should consult with FINRA experts, like the lawyers at Malecki Law in New York.

Slow Progress for Women in the Financial Services Industry

November 27, 2023 | Malecki Law Team

In recent years, discussions about the gender pay gap have risen to the surface in a litany of industries and in just about every corner of the country. For far too long, women have earned less than their male counterparts, despite having the same, or better, job titles, backgrounds, and experience levels. In his article for Investment News, titled “’Murky disparity’ stalls progress,” Bruce Kelly explored the issue of gender pay disparities specifically as it relates to women working in the financial services industry.

According to the article, women only make up about 20% of financial advisors nationwide, and only about a third of the seats on the boards of S&P 500 companies are held by women. Jenice Malecki, the female founder of the New York-based securities law firm, Malecki Law, was quoted in the article, stating there are still plenty of pay disparities between employees of different genders at various firms. Ms. Malecki explained that she still gets contacted by women regarding their struggle with the glass ceiling they encounter in their employment and pay discrepancies. She added that, while some improvements have been made regarding pay disparities at the largest firms, those issues remain at firms that have smaller offices in various parts of the country. Smaller firms and satellite offices for larger firms generally operate with less oversight and supervision than their larger counterparts, allowing gender pay disparities to persist. If you are a female financial service professional and have suffered from unfair treatment at the hands of your employer, you should consult an experienced securities law attorney, like the ones at Malecki Law.

Another added layer to the pay disparity dilemma is the issue of transparency. Because of the lack of transparency, employees are unaware whether they are getting compensated equally as their peers. Few employees take the risk of complaining about this issue for various reasons, such as fear of retaliation or the loss of their job, so the lack of transparency remains, leading to the natural result of unequal pay. As Ms. Malecki explained in the article, many employees are not willing to challenge this unequal system, and as a result, numerous concealed disparities persist.

New York State Bar Association’s Securities Arbitration Committee to Host Lunchtime Panel: “Representing Employees in the Securities Industry”

July 18, 2022 | Malecki Law Team

On July 27, 2022, the Securities Arbitration Committee of the Commercial and Federal Litigation Section of the New York State Bar Association will put on a free, lunch hour (12:15 PM to 1:30 PM) educational panel to discuss issues unique to the legal representation of employees in the securities industry. The seminar will feature panelists Pearl Zuchlewski and Kirsten Patzer, experienced attorneys who will discuss “An Employee’s Perils: Securities Arbitration in a Regulated World.” The panel will share their experiences in employee representation as it relates to industry rules set forth by the Financial Industry Regulatory Authority (FINRA) and the Securities Exchange Commission (SEC), respectively applying to financial professionals registered with broker dealer and investment advisory institutions.

The lunchtime discussion will focus on differences between representing registered individuals in different forums, whether relating to customer or industry disputes in FINRA Arbitration or the American Arbitration Association (AAA). Discussion will also include common issues relating to registration (e.g., U4/U5 disputes) or other employment disputes, regulatory implications for financial professionals called before the SEC or FINRA (i.e., via subpoena or FINRA 8210 requests), and considerations for when there are civil or criminal penalties at stake. Special attention will be devoted to resulting issues likely to impact a financial professional’s future employment, whether inside or outside the securities industry, as well as a discussion on the latest regulatory trends in this space.

The New York State Bar Association (NYSBA) and its Securities Arbitration Committee regularly hosts seminars and educational panels like this one. The committee is co-chaired by Jenice L. Malecki, Esq., founder and proprietor of Malecki Law, a Manhattan-based securities firm that has provided national legal representation to securities industry professionals before regulators (SEC and FINRA) as well as in customer arbitrations, expungement hearings, and U4/U5 disputes for over twenty-five years. Ms. Malecki has additionally served on FINRA’s National Arbitration and Mediation Committee (NAMC), on the board of the Public Investors Advocate Bar Association (PIABA), and is currently an adjunct professor in the Securities Arbitration Clinic at the New York Law School.

Can FINRA Arbitrations be Conducted Remotely by Live Video or Online?

May 20, 2020 | Malecki Law Team

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.

I Received A Rule 8210 Notice From FINRA, What Is Going On?

March 24, 2020 | Malecki Law Team

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

October 31, 2018 | Malecki Law Team

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.

How can I get a customer complaint or customer arbitration removed from my CRD/BrokerCheck?

June 8, 2018 | Malecki Law Team

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.

My Brokerage Firm Put Me on Administrative Leave; Am I Going to be Fired? What do I do?

January 5, 2018 | Malecki Law Team

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.