Using U-5 Forms As a Weapon
Parting ways is never easy, but in the financial industry it brings along an added layer of difficulty. When a financial advisor leaves a firm, for any reason, the U-5 must be submitted within 30-days of the departure. A FINRA attorney will warn advisors that firms may mark a U-5 form in a misleading manner for a number of reasons. But, the resulting defamation or disparagement is a serious violation of the FINRA rules. Using a U-5 as a weapon is actionable and can carry severe sanctions. For example, in Ulrich v. Wharton Whitaker and Eaton Vance Distributors, a NASD arbitration, a financial advisor/broker was awarded $625,000 in actual damages. Plus, he was awarded $1,250,000 in punitive damages and attorneys’ fees because his U-4 and U-5 were improperly marked with defamatory statements.
Examples of Condemnations
There are other condemnations of using a U-5 form as a weapon to defame or disparage a departing financial advisor. Recently, a FINRA arbitration panel ordered UBS Financial to pay more than $11 million to a market operations supervisor. The FA alleged defamation on his U-5 form. Mark Munizzi, the market operations supervisor, was fired by UBS in April 2018. He claimed that UBS’ U-5 description of his termination was defamatory and kept him from finding another job in the financial industry. The FINRA arbitration panel agreed. In addition to the award, the panel ordered his U-5 to be changed to reflect his termination without cause. The award also included compensatory and punitive damages, attorneys’ fees, and interest on a portion of the damages as severance pay.
The Aggressive Use of U-5 Forms
FINRA arbitrators are clearly taking issue with aggressive use of the U-5 form. Firms should caution those employees responsible for U-5 marking to complete the U-5 with accurate information and no other agenda. On the other hand, financial advisors should be proactive in trying to determine how a firm will mark their U-5. They should negotiate with the firm before the U-5 is filed, should it appear a misleading mark. FINRA attorneys agree that it’s easier to address inaccuracies before filing a U-5 than to undergo a lengthy expungement process. In either event, an experienced FINRA attorney can guide a financial advisor through the process.
Rogge Dunn Group, an experienced FINRA arbitration attorney, has extensive experience working with financial advisors across the country on an entire array of industry issues, including transitioning from prior firms. To contact us about legal issues surrounding the financial industry, click here.