When a registered person leaves employment with a broker-dealer, whether voluntarily or involuntarily, the departing firm is required to file a document, known as a Uniform Termination Notice for Securities Industry Registration, or Form U-5, with FINRA’s Central Registration Depository (CRD). The firm is required to file a U-5 within 30 days of the date the registered person’s employment with the broker-dealer officially terminated and, importantly, to state the reason for the person’s termination of employment.
Usually, the firm completes the U-5, submits it to FINRA and sends a copy to the departing employee. The departing employee rarely, if ever, sees the actual, completed U-5 before it is filed with FINRA, which can create significant risk for the broker-dealer. Once filed, a U-5 usually cannot be revoked and, instead, it only can be amended and that process is a difficult one. Once it is filed, the U-5 remains a matter of public record that the departing employee carries with him or her for the remainder of their career. In very rare instances, if the terminating firm wishes to take the time and energy, it can assist a former registered person in revising the U-5.
Over the past decade, there have been a growing number of arbitrations arising out of filed U-5s in which former registered persons have alleged, at times with great success, that their former employer defamed and damaged them by filing a less than accurate U-5. The potential liability, in fact, has been so great to broker-dealer firms that many of the damage awards to former employees for U-5 defamation claims have been in the millions of dollars.
Shepherd, Finkelman, Miller & Shah, LLP, has extensive experience representing both claimants and respondents in U-5 defamation matters. Our securities law attorneys have recovered millions of dollars for defamed claimants and also have successfully defended a number of defamation claims in which we have established that the claims were not meritorious under applicable law.