Form U-5 Expungements
When a broker’s employment is terminated, brokerage firms must complete and file a Form U-5 (Uniform Termination Notice for Securities Industry Registration) with securities regulators. They are required to report the reason for the termination, and whether the broker left voluntarily, was allowed to resign, or was fired. If a brokerage firm wants to retaliate against a broker formerly in its employ, it may include information on the Form U-5 that ruins the broker’s reputation and damages their ability to find another job in the securities industry. Arbitration before a FINRA panel is the only recourse available to brokers who want injurious comments removed from their Form U-5. FINRA will expunge details if the panel members find them to be “defamatory, misleading, inaccurate, or erroneous.” The arbitration award must specifically require expungement; and supply the language to be substituted for the deleted statements.
As soon as a broker becomes aware of defamatory comments entered on their Form U-5, they should apply to FINRA to expunge the false information and engage an attorney for legal advice and direction during the arbitration process. Brokers have six years from the date the U5 was entered in the CRD to file an arbitration demand with FINRA.
False or inaccurate information reported on a Form U-5 can act as the basis for a defamation claim against a former employer. Brokers can ask FINRA to delete the comments from the Central Registration Depository (CRD) records, and seek monetary damages
Claimants in FINRA arbitration may seek monetary damages in addition to the expungement of information from a Form U5. This usually happens when the claimant alleges something more than inaccuracy of the statements on the Form U5, such as wrongful termination or that the Form U5 statements are also defamatory.
Form U5 claims are frequently accompanied by other claims, such as wrongful termination, libel, injurious falsehood, interference with business opportunities, defamation, negligence, and breach of contract.
In July 2010, broker Barbara Sanborn filed a FINRA Arbitration Statement of Claim alleging that she had been defamed on a Form U-5 filed with the CRD by her former employer, Wells Fargo Advisors. She asserted causes of action for, among other things, defamation and tortious interference with advantageous business relationship. In addition to an award recommending the amendment of her Form U-5 to reflect that she had voluntarily resigned and not been terminated, Sanborn demanded at least $250,000 in compensatory damages and $750,000 in punitive damages, interest, costs, and attorneys’ fees.
In November 2011 both Sanborn and Wells Fargo Advisors notified the FINRA Arbitration Panel that they had settled, and Sanborn’s claims were dismissed with prejudice. The Panel also recommended the expungement of Sanborn’s Form U-5. The reason for the termination was amended to read “Other”.
If a brokerage firm can prove that the comments entered on the Form U-5 are based on fact, they have a viable defense to a Form U-5 expungement claim. A better option is for employers and brokers to avoid expensive and time-consuming arbitration by agreeing on the reason for termination statement that will be recorded on the Form U-5. FINRA requires that Form U-5 statements be both truthful and adequately informative, but they do not have to be presented or worded in a manner unjustly injurious to the ex-employee.