201-896-4100 info@sh-law.com

Why FINRA Expungements Can Remove Damaging Form U5 Disclosures

Author: Jon-Jorge Aras|January 23, 2024

FINRA Expungements: When a Form U5 Is Required

Why FINRA Expungements Can Remove Damaging Form U5 Disclosures

FINRA Expungements: When a Form U5 Is Required

Why FINRA Expungements Can Remove Damaging Form U5 Disclosures

Because Form U5 filings are available to regulators, state agencies, and potential employers, misleading or inaccurate information can threaten the livelihood of broker-dealers, registered investment advisers, and other FINRA-registered financial professionals. To protect your reputation, it is imperative to take prompt legal action, which may involve seeking FINRA expungements.

Individuals who work in the securities industry must be registered with the appropriate jurisdictions and/or self-regulatory organizations (SROs), such as FINRA. A Form U5 (the Uniform Termination Notice for Securities Industry Registration) must be filed when an individual leaves a firm for any reason. 

A Form U5 must be submitted within 30 days of the individual’s employment end date. Additionally, firms are under a continuing obligation to amend and update the form until final disposition, including reportable matters that occur and become known after the initial submission of this form.

The degree of disclosure required on Form U5 depends on the circumstances of the termination. For a full termination, firms are required to provide the reason for termination from the following selections: “Voluntary,” “Deceased,” “Permitted to Resign,” “Discharged,” or “Other.” If “Permitted to Resign,” “Discharged,” or “Other,” is checked, firms must also provide a narrative explanation for the separation.

Depending on the circumstances of the termination, firms may be required to make additional disclosures. For instance, Question 7B asks whether, at the time of the termination of the representative’s registration, was the representative “under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules, or industry standards of conduct.” Other questions address criminal charges, regulatory actions, government investigations, and customer complaints. As FINRA explains in Regulatory Notice 10-39, firms must “provide sufficient detail when responding to Form U5 questions such that a reasonable person may understand the circumstances that triggered the affirmative response.”

Information contained in Form U5 disclosures becomes part of a financial professional’s record in FINRA’s Central Registration Depository (CRD) system. Although public investors can’t access the CRD system, much of the information that is submitted to CRD via the uniform registration forms is made publicly available through FINRA BrokerCheck.

Even when individuals willingly depart their firms, Form U5 Forms can still include potentially contain potentially damaging information. Unfortunately, outright abuse of U5 filings is also not uncommon, whether firms want to damage a departing broker’s reputation after a soured business relationship or discourage clients from following them to new firms.

If your Form U5 contains inaccurate or misleading information, the first step is to notify your former employer that you disagree with the statement contained on your Form U5 and request a retraction. Absent a clerical error, firms may be unwilling to amend the form; however, formally requesting a correction puts the firms on notice that you are challenging the accuracy of their U5 disclosures and demonstrates that you have made a good-faith effort to resolve the matter.

If your dispute involves purely factual information and not subjective or interpretive information, such as the reason for the termination, FINRA offers a BrokerCheck dispute process. As defined in FINRA Rule 8312(e), the process allows eligible individuals and FINRA firms to dispute or update the accuracy of information that is disclosed in their own BrokerCheck reports.

If FINRA determines that a dispute is eligible for investigation, FINRA will add a notation to the eligible party’s BrokerCheck report stating that the matter is under dispute. If the investigation reveals documentation sufficient to change the information, FINRA will make the appropriate change.

In many cases, correcting an erroneous Form U5 requires filing an arbitration claim against your former firm. FINRA requires a court order directing expungement or an order confirming an arbitration award containing expungement before it will expunge information from the CRD system.

To secure an expungement, registered financial professionals must prove in arbitration that the U5 is defamatory, misleading, inaccurate, or erroneous. While any one ground for expungement is sufficient, it is particularly advantageous to allege defamation because, if successful, expungement is more straightforward.

FINRA will expunge the information, without a court order, if the arbitration panel awards expungement relief based on the defamatory nature of the information contained in the CRD system, and explicitly states in the award that it is recommending expungement on that basis. If, however, the arbitration panel does not state that it is awarding expungement relief based on the defamatory nature of the information, FINRA will not expunge the information unless a court of competent jurisdiction confirms the arbitration award.

When seeking to obtain expungement of employment information from a U5, it is also important to clearly state in your claim what you believe the form should state, including the reason for termination and any accompanying explanations. As FINRA explains in its The Neutral Corner guidance, it can only expunge information from the CRD system to the extent that it is directed to do so in an arbitration award. For instance, FINRA can’t expunge a termination comment if the arbitration award does not provide the necessary replacement language. Arbitration claims (and resulting awards) must also specify all references to the termination at issue to ensure that all negative information is removed.

When departing a securities firm, it is essential to be proactive and consult with an experienced FINRA attorney as soon as possible. Our dedicated FINRA defense attorneys regularly provide our broker-dealer and investment advisor clients with U5 assistance and can help negotiate U5 disclosures that protect your best interests.

If your U5 already contains false or misleading information, it is not too late to take legal action. Our team has successfully filed expungement petitions to remove false U5 disclosures concerning a broker’s termination from a broker-dealer. If you are the subject of a false or inaccurate Form U5, we encourage to contact one of our FINRA defense attorneys today.

Why FINRA Expungements Can Remove Damaging Form U5 Disclosures

Author: Jon-Jorge Aras
Why FINRA Expungements Can Remove Damaging Form U5 Disclosures

Because Form U5 filings are available to regulators, state agencies, and potential employers, misleading or inaccurate information can threaten the livelihood of broker-dealers, registered investment advisers, and other FINRA-registered financial professionals. To protect your reputation, it is imperative to take prompt legal action, which may involve seeking FINRA expungements.

Individuals who work in the securities industry must be registered with the appropriate jurisdictions and/or self-regulatory organizations (SROs), such as FINRA. A Form U5 (the Uniform Termination Notice for Securities Industry Registration) must be filed when an individual leaves a firm for any reason. 

A Form U5 must be submitted within 30 days of the individual’s employment end date. Additionally, firms are under a continuing obligation to amend and update the form until final disposition, including reportable matters that occur and become known after the initial submission of this form.

The degree of disclosure required on Form U5 depends on the circumstances of the termination. For a full termination, firms are required to provide the reason for termination from the following selections: “Voluntary,” “Deceased,” “Permitted to Resign,” “Discharged,” or “Other.” If “Permitted to Resign,” “Discharged,” or “Other,” is checked, firms must also provide a narrative explanation for the separation.

Depending on the circumstances of the termination, firms may be required to make additional disclosures. For instance, Question 7B asks whether, at the time of the termination of the representative’s registration, was the representative “under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules, or industry standards of conduct.” Other questions address criminal charges, regulatory actions, government investigations, and customer complaints. As FINRA explains in Regulatory Notice 10-39, firms must “provide sufficient detail when responding to Form U5 questions such that a reasonable person may understand the circumstances that triggered the affirmative response.”

Information contained in Form U5 disclosures becomes part of a financial professional’s record in FINRA’s Central Registration Depository (CRD) system. Although public investors can’t access the CRD system, much of the information that is submitted to CRD via the uniform registration forms is made publicly available through FINRA BrokerCheck.

Even when individuals willingly depart their firms, Form U5 Forms can still include potentially contain potentially damaging information. Unfortunately, outright abuse of U5 filings is also not uncommon, whether firms want to damage a departing broker’s reputation after a soured business relationship or discourage clients from following them to new firms.

If your Form U5 contains inaccurate or misleading information, the first step is to notify your former employer that you disagree with the statement contained on your Form U5 and request a retraction. Absent a clerical error, firms may be unwilling to amend the form; however, formally requesting a correction puts the firms on notice that you are challenging the accuracy of their U5 disclosures and demonstrates that you have made a good-faith effort to resolve the matter.

If your dispute involves purely factual information and not subjective or interpretive information, such as the reason for the termination, FINRA offers a BrokerCheck dispute process. As defined in FINRA Rule 8312(e), the process allows eligible individuals and FINRA firms to dispute or update the accuracy of information that is disclosed in their own BrokerCheck reports.

If FINRA determines that a dispute is eligible for investigation, FINRA will add a notation to the eligible party’s BrokerCheck report stating that the matter is under dispute. If the investigation reveals documentation sufficient to change the information, FINRA will make the appropriate change.

In many cases, correcting an erroneous Form U5 requires filing an arbitration claim against your former firm. FINRA requires a court order directing expungement or an order confirming an arbitration award containing expungement before it will expunge information from the CRD system.

To secure an expungement, registered financial professionals must prove in arbitration that the U5 is defamatory, misleading, inaccurate, or erroneous. While any one ground for expungement is sufficient, it is particularly advantageous to allege defamation because, if successful, expungement is more straightforward.

FINRA will expunge the information, without a court order, if the arbitration panel awards expungement relief based on the defamatory nature of the information contained in the CRD system, and explicitly states in the award that it is recommending expungement on that basis. If, however, the arbitration panel does not state that it is awarding expungement relief based on the defamatory nature of the information, FINRA will not expunge the information unless a court of competent jurisdiction confirms the arbitration award.

When seeking to obtain expungement of employment information from a U5, it is also important to clearly state in your claim what you believe the form should state, including the reason for termination and any accompanying explanations. As FINRA explains in its The Neutral Corner guidance, it can only expunge information from the CRD system to the extent that it is directed to do so in an arbitration award. For instance, FINRA can’t expunge a termination comment if the arbitration award does not provide the necessary replacement language. Arbitration claims (and resulting awards) must also specify all references to the termination at issue to ensure that all negative information is removed.

When departing a securities firm, it is essential to be proactive and consult with an experienced FINRA attorney as soon as possible. Our dedicated FINRA defense attorneys regularly provide our broker-dealer and investment advisor clients with U5 assistance and can help negotiate U5 disclosures that protect your best interests.

If your U5 already contains false or misleading information, it is not too late to take legal action. Our team has successfully filed expungement petitions to remove false U5 disclosures concerning a broker’s termination from a broker-dealer. If you are the subject of a false or inaccurate Form U5, we encourage to contact one of our FINRA defense attorneys today.

Firm News & Press Releases