On September 4, 2012, financial adviser Vincent W. Romano (“Romano”) filed a Statement of Claim with the Financial Industry Regulatory Authority, Inc. (“FINRA”) against his former employer, Morgan Stanley Smith Barney, LLC (“Morgan Stanley”). In his Statement of Claim, Romano raised libel and slander causes of action relating to his Form U-5 termination form and alleged that Morgan Stanley marked his employment record in order to harm Romano’s campaign for political office in Illinois. Romano stated that, “[Morgan Stanley] feared a loss of business with the city of Chicago and the state of Illinois because [Morgan Stanley] has a relationship with House Speaker Michael Madigan, and [Romano] was running on a reform platform that could upset Michael Madigan’s political power.” Romano further alleged that Morgan Stanley “failed to follow its own procedures regarding running for political office and fabricated a reason to terminate [Romano].” As a result of these actions, Romano sought $2 million in compensatory damages and $6 million in punitive damages.
Morgan Stanley filed a Statement of Answer, denying the allegations and asserting multiple defenses. Morgan Stanley stated that the causes for termination referenced on Romano’s Form U-5 stemmed from “concerns about [the] financial adviser running for elected political office, despite not having received prior firm approval for same, as required by firm policy.”
FINRA issued an arbitration award (“Award”) against Morgan Stanley in the amount of $475,000 in compensatory damages, $50,000 in punitive damages, and $9,600 in member fees. In addition to financial penalties, the Award mandated that Morgan Stanley change the language on Romano’s Form U5, which FINRA viewed as being of a “defamatory nature.” The new cause for termination shall state that Romano was “discharged” because of “[c]oncerns about the Financial Adviser running for elected political office, despite not having received prior firm approval for same, due to a misunderstanding between the firm and the Financial Adviser. The terminated employee violated no investment-related statutes, regulations, or rules.”
FINRA maintains a publicly available database of online background reports for some brokers who are currently, or were formerly, registered with FINRA. According to FINRA’s website, “BrokerCheck is a free tool to help investors research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives . . . It includes current licensing status and history, employment history and, if any, reported regulatory, customer dispute, criminal and other matters. It should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular firm or individual.” Because FINRA makes all of this information so easily available to the investing public, it is imperative for registered representatives to maintain clean records with the FINRA Central Registration Depository (“CRD”). As a result, brokers who are unhappy with markings on their Form U-5 when terminated often file FINRA arbitration claims against their former broker-dealer to expunge their CRD record. This arbitration process can take years before an arbitration panel issues an award expunging the brokers’ records. Brokers and registered representatives can avoid litigating the language on their Form U-5 with their former broker-dealer by hiring a securities and labor and employment law firm that specializes in representing financial services professionals to negotiate the Form U-5 language with the broker-dealer prior to the broker-dealer filing the form with FINRA. By negotiating more favorable language, the broker can ensure their CRD Report remains clean, and would also avoid the costs of arbitrating with their former employer.
Lax & Neville LLP has nationally represented brokers with transitions, negotiations of Form U-5 language and arbitrations involving expungement claims. Additionally, Lax & Neville has extensive experience in representing securities industry companies, broker-dealers and financial services professionals in regulatory matters and securities-related and commercial arbitration/litigation and in successfully prosecuting claims on behalf of customers who have suffered losses. Please contact our team of attorneys for a consultation at (212) 696-1999.