Unlike most industries, the securities industry is unique in that it requires certain termination information on former associated members to be publicized. FINRA requires firms to report the termination of a representative’s registration/employment within 30 days of the termination through the CRD system on a Form U-5. Once the U-5 has been processed, it may become available for FINRA to post on BrokerCheck depending on the reason for termination listed on the U-5, which means it is viewable by all relevant regulatory agencies and, often, by prospective employers in the industry and the public at large.
Language placed on a U-5 can affect an adviser's reputation, trigger questions from prospective employers and regulators, interfere with registration, and make it more difficult to continue working in the financial-services industry, potentially costing the adviser clients and diminishing his/her hard-earned book of business.
Cosgrove Simpson represents financial advisers, brokers, registered representatives, investment professionals, and other financial-industry professionals in U-5 defamation, wrongful-termination, and related FINRA disputes.
If a former firm has placed false, misleading, incomplete, or damaging information on your U-5, the issue should be evaluated promptly.
What is U-5 Defamation?
Broker-dealers use FINRA Form U-5 to report the termination of a registered person's association with the firm and to provide information concerning certain circumstances surrounding that termination.
What a firm says on the U-5 can matter enormously.
Unfortunately, some broker-dealers and RIAs will abuse this process. A false or damaging U-5 disclosure can follow a financial adviser long after the termination. We have seen employers unleash compliance or “reputation managers” on advisers, or conduct an “internal raid” in order to find a reason for a termination the employer was already going to execute. In short, compliance becomes a business weapon.
A termination explanation suggesting misconduct, dishonesty, violation of firm policy, customer complaints, regulatory concerns, or other wrongdoing can affect the adviser's professional reputation and future employment opportunities.
Can a Financial Adviser Sue Over a False U-5?
Depending upon the circumstances, disputes concerning U-5 language may be addressed through FINRA arbitration.
A financial adviser may dispute not only an expressly false statement, but also language that the adviser believes creates a misleading impression about what actually occurred.
Whether particular U-5 language can support a legal claim depends upon the facts, applicable law, FINRA rules and procedures, and the circumstances surrounding the filing.
Potential claims can include:
- Form U-5 defamation
- Wrongful termination
- Business interference
- Breach of contract
- Unpaid compensation
- Promissory-note disputes
- Retaliation claims
- Other employment and business-related claims
The legal issues surrounding a defamatory or false U-5 filing often extend beyond the words appearing on the form. The reasons for the termination, communications within the firm, regulatory concerns, compensation disputes, client relationships, and events leading to the adviser's departure may all become important.
Experience in U-5 Defamation Cases
Cosgrove Simpson has represented financial advisers in significant FINRA and employment-related disputes.
Among the firm's reported results:
More than $3.3 million for an investment adviser and compliance officer.
Cosgrove Simpson obtained more than $3.3 million on U-5 defamation and business-interference claims involving an investment adviser and compliance officer In Kentucky.
$600,000 FINRA award for a financial adviser.
The firm represented a financial adviser in a Maryland FINRA arbitration resulting in a $600,000 award. The arbitration also resulted in relief concerning the adviser's professional disclosure record.
$3.25 million FINRA award for a financial adviser.
Cosgrove Simpson represented a Connecticut financial adviser against his former broker-dealer and obtained a $3.25 million FINRA arbitration award. The broker-dealer's $10 million counterclaim was dismissed.
The firm also represents financial professionals in wrongful-termination disputes, adviser transitions, restrictive-covenant matters, compensation disputes, regulatory investigations, and registration proceedings.
Past results do not guarantee future outcomes. Every matter depends upon its particular facts and circumstances.
A U-5 Dispute Can Affect More Than an Adviser's Reputation
A disputed U-5 filing does not necessarily remain an employment dispute between an adviser and a former firm.
The disclosure may lead to questions from FINRA, a state securities regulator, a prospective broker-dealer, or another regulatory authority. It can also complicate an adviser's transition to another firm and create issues during the registration process.
Cosgrove Simpson's practice includes both FINRA arbitration and securities regulatory representation. That allows the firm to consider the employment, arbitration, registration, and regulatory consequences of a U-5 disclosure together.
The objective is not simply to litigate what a former employer said. It is to understand what that statement may mean for the adviser's career.
What Should I Do If My Former Firm Filed a False or Damaging U-5?
Obtain a copy of the filing and review the exact language used by the former firm. The firm should send you a copy upon filing.
Preserve communications, employment records, evaluations, compensation records, text messages, emails, and other documents relevant to the termination and the firm's stated reasons for it.
Avoid assuming that the U-5 issue will resolve itself simply because a new firm knows your side of the story.
Consider obtaining legal advice before making substantive written statements about the dispute to a former employer, prospective employer, regulator, or other third party.
Talk With a Form U5 Defamation Lawyer
If your former broker-dealer or RIA has filed a false, misleading, or damaging U-5—or if you are concerned about what a firm intends to report when you leave—Cosgrove Simpson can evaluate the language, the circumstances surrounding your termination, and the potential consequences for your career.
The firm represents financial professionals in FINRA arbitration and related regulatory matters throughout the United States.
¹The CRD is an online registration and licensing database that allows for the filing of required forms related to the securities industry that must be submitted for a multitude of reasons, such as “Form U-5 – Uniform Termination Notice for Securities Industry Registration.” Regardless of the circumstances surrounding a representative leaving the firm to which they are registered, a U-5 must be filed by the firm with the CRD within 30 days of the date of termination, as well as be provided to the representative. FINRA determines what portions of the CRD filings become publicly available on BrokerCheck.