New York Securities Fraud Lawyers Blog
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.
Why are investment firm employers concerned with the Form U5 of prospective employees? In part, this is likely due to the adoption of FINRA Rule 4111, which became effective on January 1, 2022. Rule 4111 provides:
“…a multi-step, annual process through which FINRA will determine whether a member firm raises investor protection concerns substantial enough to require that it be designated…as a Restricted Firm and subject to additional obligations.”
Furthermore, that the Rule:
“…addresses risks from broker-dealers with a significant history of misconduct, including firms with a high concentration of individuals with a significant history of misconduct.”
Risk is a crucial aspect of the Rule. Firms may be concerned with future litigation involving a new registered representative. If that same representative sued their former employer based on discrimination, or any other claim, firms may be reluctant to hire the representative. If you feel that your Form U5 is preventing you from getting hired, you should consult with financial industry attorneys, like the lawyers at Malecki Law in New York.
Firms are not to blame for being overly cautious. However, following Rule 4111, innocent registered representatives may be facing unnecessary barriers in the securities industry, simply because of erroneous information that really evidences a “bad seed.” After all, no one is perfect. The “one strike and you’re out” mentality should only apply to accurate Form U5 disclosures. Furthermore, FINRA is a forum rooted in equity, and it would be inequitable to have defamatory language haunting a Form U5. If you need a disclosure expunged on your Form U5, or would like a review of your documents, you should reach out to an investor protection lawyer, like the attorneys at Malecki Law in New York.
Contributions by Brandon Amato, Summer Legal Intern and Student at New York Law School.