Claims of Broker Misconduct Often Inaccurately Reported on Form U-5s

As recently noted in research reported by Bloomberg News, false claims of financial advisor misconduct are more common than people may think.  Dynamic Securities Analytics, a securities litigation consulting firm, reviewed 82 arbitrated disputes between brokerage firms and their former brokers that took place between 2016 and the first quarter of this year. In roughly half of those cases, arbitrators concluded that firms had defamed brokers when reporting the reasons for their dismissals.

Brokerage firms are required by FINRA to file a Form U-5 within 30 days after the termination of a financial advisor’s employment.  Firms are required to disclose the termination reason and provide a written explanation where the termination reason is “Permitted to Resign,” “Discharged,” or “Other.”  The truthfulness of the information disclosed on the Form U-5 is extremely important as the information is used for a variety of reasons by multiple entities.  In particular, brokerage firms use the information to assist them in making informed employment decisions about brokers, and customers often view disclosure information on FINRA’s BrokerCheck website when deciding to hire a financial advisor to manage their assets.  Depending on the nature of the statements disclosed on the Form U-5, it might be impossible for an advisor to obtain employment with a new firm as well as secure new clients.

As noted in the Bloomberg article, some brokers and lawyers who represent them say that brokerage firms may also use the public comments to hobble a broker’s ability to move clients with them on the way out the door.  Furthermore, a black mark on a Form U-5 limits a broker’s ability to move to a new firm where clients can even follow.  Brokers who want to remove or amend a firm’s Form U-5 filing must pursue relief in arbitration overseen by the Financial Industry Regulatory Authority, known as FINRA.

Gregory B. Simon Law, LLC is a national securities law firm that provides legal services to investors and financial advisors on a wide range of financial industry matters.  For more information on the firm, please visit https://www.gregsimonlaw.com.

Categories: News & Updates

Contact Us For More Information

  • This field is for validation purposes and should be left unchanged.