BrokerCheck and Form U5: Protecting Your Reputation.

BrokerCheck and Form U5: Protecting Your Reputation A FINRA BrokerCheck

provides some insight into a broker’s past, but it does not display the complete filed Form U5. Some Form U5 disclosures trigger FINRA investigations, which promptly prompts scrutiny regarding past employment records. Negative termination language delays the registration review process at a new firm. Registered brokers need to understand the implications of their Form U5 and engage experienced legal counsel to protect their professional reputations. The Central Registration Depository (CRD) stores all registration and disclosure records for individuals and member firms. These include electronic records filed by member firms themselves. BrokerCheck serves as one of the primary interfaces for accessing the CRD database, which the financial services industry relies upon for critical data on registration, licensing, and formal complaints. It is the core repository that informs brokers’ eligibility and compliance. Customer disputes, regulatory actions, and specific terminations appear on a broker’s BrokerCheck. These details originate from mandatory FINRA filings, including the Form U5, and other reporting obligations established by FINRA rules. Even if a broker’s most recent Form U5 language has not yet appeared on the public BrokerCheck website, it may still pose substantial risks during the registration process at a new firm. This is where swift legal action becomes necessary to address the filing before it can do more damage.

Q: Do the Awards and Testimonials Make Your Firm the Most Feared Litigation Firm?

While we take pride in our accomplishments, this information is attorney-advertising. Spodek Law Group has earned numerous accolades and endorsements from clients and the media, reflecting our firm’s strong reputation within the legal field. However, no court, regulator, or FINRA rule designates our firm as the “most feared” litigation firm. Our attorney-advertising awards and testimonials are not regulatory findings or adjudicated outcomes.

How do I Get and Review My Complete Form U5?

BrokerCheck publications generally show selected disclosure information derived from a broker’s records in the Central Registration Depository (CRD), which includes the Form U5 and other Form U4 disclosures. Brokers whose Form U5 contains any reporting page and/or other information can generally obtain an electronic copy of the filed Form U5 via their FinPro account. Broker-Dealers are required by FINRA By-Laws Article V, Section 3(a) to provide terminated individuals a copy of the filed Form U5:

“Each Member shall promptly deliver to the individual terminated within the Member’s organization the copy of the filed Form U5.”

The SEC-administered IAPD reports information on investment adviser firms and representatives, including disclosures, by accessing registration data in the Investment Adviser Registration Depository (IARD) system.

To make an informed assessment, it is essential that brokers obtain their complete Form U5, ensuring that this filing includes all applicable Disclosure Reporting Pages submitted. Brokers and their families must promptly contact a federal defense attorney who knows FINRA regulations and can help them access their filings, whether electronically through FinPro, on their own directly from their previous firms, or through a public records request.

Q: What is the Purpose of a Form U5?

The Form U5 is used to terminate an individual’s registration with individual jurisdictions, self-regulatory organizations such as FINRA or the NFA, or other appropriate bodies. As a result of this filing, an individual can no longer conduct regulated activities.

Q: When is a Form U5 Required to be Filed?

Under FINRA’s rules, member firms must file a Form U5 generally within 30 days of an individual’s termination. With this filing, firms are required to include additional information about the circumstances surrounding the termination. These additional disclosures can trigger inquiries from FINRA and may appear on a broker’s BrokerCheck profile if the terminated individual was subject to an employment-related allegation or a formal complaint that required a detailed explanation. The Form U5 requires firms to report the termination reason, whether the individual is barred or if the individual has received any disciplinary actions.

How Do I Prove and Correct a False Form U5?

Q: Can a Previously Filed Form U5 be Amended?

Yes, firms can amend previously filed Forms U5. Under FINRA By-Laws Article V, Section 3(b), amendments are required when a firm discovers that its information was inaccurate or incomplete: “If any form filed with the corporation contains inaccurate information, it is incomplete, or there is any additional information that is relevant and required by FINRA’s rules, a Member must file an amended form within thirty (30) days after discovering the fact.” An employer may amend the Form U5 without obtaining an arbitration award or court order.

Q: How Do I Prove My Form U5 is False?

Brokers can prove their Form U5 is false by demonstrating that their termination was a “pretext.” In other words, their termination was a result of something other than what is stated in the Form U5 filed with FINRA. We can establish whether there was any factual support for the explanation given by reviewing your employer’s internal investigation files, contemporaneous communications, and other evidence to determine if your employer’s actions align with its official reasons.

Q: How Do I Prove Economic Harm?

Brokers may also prove the economic harm resulting from a Form U5 disclosure through:

• Recruiter and third-party communications
• Records of withdrawn job offers
• Previous compensation records
• Tax returns

  Q: Is There a 48-Hour Deadline to Respond to Form U5 Disclosures?

  While some brokers have learned of a 48-hour deadline for responding to the disclosure, no FINRA rule establishes a universal deadline. There are, however, multiple other procedural constraints and timelines involved in responding to Form U5 allegations and pursuing a remedy for a false Form U5.

  Q: What is Expungement, and Are Brokers Entitled to Expungement if Their Form U5 Contains False Information?

  Expungement is the process of removing allegedly false, misleading, or incomplete information from a broker’s public BrokerCheck profile. FINRA’s Rule 2080 (formerly NASD Rule 2130) establishes an expungement process for allegations of wrongdoing, violations of securities laws and regulations, and other conduct that may affect a broker’s fitness to conduct business in the securities industry. However, expungement will only occur if the broker can show that:

• The reported allegation is factually impossible;
• The reported allegation is clearly erroneous;
• The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds, or;
• The reported allegation is false.

Arbitrators typically rely on the findings of securities litigation and arbitration to make decisions regarding expungement. As a result, it is critical to engage experienced counsel to prove that the Form U5 contains false information in an efficient and effective manner.

Which Remedy Applies to Inaccurate Form U5 Information?

Q: Can Arbitrators Change the Termination Language on My Form U5?

Yes. Arbitrators can recommend amending, rewriting, or entirely removing inaccurate termination language. When an arbitrator recommends the amendment or expungement of termination language, an employer can appeal to a court. While appeals are subject to the same standards of review as other arbitration awards, appeals of recommended expungement can affect the timing of expungement.

Q: Do Form U5 Termination Disputes Involve the Same Expungement Process as Customer-Dispute Expungement Proceedings?

No. Form U5 termination disputes and customer-dispute expungement proceedings are separate legal matters with different procedural and substantive rules. For example, FINRA Rule 2080 expressly addresses the expungement of customer-dispute information.

Q: Does a Broker-Dealer’s Liability to a Customer Lead to Automatic Expungement?

No. An arbitration award does not automatically erase information from BrokerCheck. A favorable arbitration award must be presented to FINRA, and then an award confirmation or other supporting documentation from a court may be necessary. This varies based on the specific type of information that needs to be removed.

Q: Which Remedy Is Available for Correcting False Form U5 Information?

The applicable remedy is determined by the specific circumstances involved. While Rule 13200 requires arbitration of most business disputes between member firms and associated persons, this rule generally applies to contractual claims. If the broker is also seeking to expunge the record of a customer dispute, then the broker must initiate a customer-dispute expungement request in arbitration.

Q: How Is Expungement Generally Pursued?

A request for expungement of a customer dispute is generally pursued in FINRA arbitration. If successful, the arbitrator will recommend expungement, and the broker must then seek confirmation from a court. Court confirmation is always required: under FINRA Rule 2080, a broker must obtain an order from a court of competent jurisdiction directing expungement or confirming the arbitration award before FINRA will remove customer dispute information from the CRD.

Q: Are There Special Procedures for Pursuing Expungement of Customer Complaints?

Yes. FINRA Rules 12805 and 13805 impose special procedures for customer-dispute expungement requests. These rules include requirements related to mediation, arbitration, and the timeline for obtaining court confirmation. A broker must be mindful of these additional requirements so that any expungement request is processed appropriately.

How Long Do I Have to Challenge False U5 Statements?

Q: Can a Broker Bring Claims for Monetary Damages Resulting from the Filing of an Inaccurate Form U5?

Yes. The filing of an inaccurate Form U5 may support claims for defamation, fraud, monetary damages, and more. In these claims, the applicable statute of limitations and procedural rules depend on the circumstances involved.

Q: Is There a Deadlines for Bringing a Claim in FINRA Arbitration?

Under FINRA Rule 13206, claims and defenses become ineligible “six years after the date of the underlying occurrence or event.” However, FINRA Rule 13206 explicitly states that the rule’s six-year period “shall not extend any otherwise applicable statute of limitations.” As a result, Rule 13206 establishes an eligibility limit on claims submitted to arbitration, and it neither extends nor shortens any otherwise applicable statute of limitations.

Q: How Long is the Limitations Period for Filing a Defamation Claim in New York?

In New York, under Rosenberg v. MetLife, the privilege of the Form U5 is considered absolute, meaning a broker cannot bring a claim for defamation based on the filing of an inaccurate Form U5. However, some brokers may be able to pursue their claims for monetary damages. A claim under CPLR 215(3), which governs “libel and slander,” is subject to a one-year limitations period; however, it is not clear if CPLR 215(3) imposes this one-year period for non-defamation claims.

Q: How Long is the Limitations Period for Filing a Defamation Claim in California?

In California, under Civil Code §47(c), the privilege of the Form U5 is considered qualified, which gives the privilege “the same effect as any other qualified privilege.” As a result, brokers in California can bring claims for defamation and other forms of misconduct based on the filing of an inaccurate Form U5.

Similar to CPLR 215(3) in New York, Code of Civil Procedure §340(c) imposes a one-year statute of limitations for “libel, slander, false imprisonment” claims. However, if a broker’s claim is not based on libel or slander, the limitation period for Filing a Claim in California will be three years.

Who Can Investigate Me After a Form U5 Disclosure?

Q: Does FINRA Have the Authority to Investigate?

Yes. FINRA is a self-regulatory organization operating under the SEC’s supervision and oversight. Under FINRA Rule 8210, it has the authority to issue demands to FINRA member firms and associated persons. Specifically, under Rule 8210(a)(1) and (a)(2), FINRA can demand:

• Pertinent information
• Documents
• Recordings
• Testimony

While testimony provided pursuant to a Rule 8210 demand is subject to certain requirements, it may also be given under oath.

Noncompliance with Rule 8210 is taken extremely seriously, and while it can lead to various disciplinary actions, a permanent securities-industry bar is possible. If you or your brokerage company is facing scrutiny from FINRA, it is critical to work with a team of highly experienced defense lawyers who know the industry and FINRA’s investigative processes.

Q: Can the SEC Investigate After a Form U5 Disclosure?

Yes. Investigations by the SEC Enforcement Division target potential civil violations of federal securities laws, including potential violations of SEC rules. Violators may face liability that results in substantial fines, penalties, or a permanent securities industry bar, which can significantly hinder a broker’s career opportunities.

Q: Can the DOJ or United States Attorney’s Office Investigate After a Form U5 Disclosure?

Yes. The U.S. Department of Justice (DOJ) and United States Attorney’s Offices investigate potential criminal securities offenses. This includes criminal violations of federal securities laws, fraud, tax evasion, and money laundering. Investigations involving the DOJ can take much longer than investigations involving FINRA and the SEC. However, the potential consequences are also much more severe, and potential exposure to federal criminal charges and federal prison sentences can lead to devastating consequences.

Q: Can a Broker Face Both a Civil and a Criminal Investigation?

Yes. In many cases, the SEC and DOJ conduct parallel investigations, which create additional risks and challenges. At Spodek Law Group, our attorneys handle matters conducting internal investigations on behalf of our clients, and we have successfully helped clients avoid civil and criminal consequences in many cases. If you are concerned about facing a civil or criminal investigation, our federal defense lawyers can help you assess your risks and make informed decisions about how to handle any and all inquiries from the SEC, DOJ, or other federal authorities.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.