When broker-dealers and other securities industry businesses terminate employees, the persons fired often feel like they are at a disadvantage. This is due to the potential for defamation from the FINRA Form U-5. Most businesses keep reasons for terminations private. However, the reasons for terminations are public in the securities industry business because of the regulatory oversight of the Financial Industry Regulatory Authority (FINRA).
FINRA Form U-5 Allows Public Scrutiny
All securities industry employers are required to file a FINRA Form U-5 within 30 days of an employee termination. This FINRA Form U-5 states the reason for the termination. It must also detail such matters as whether the employee was the subject of consumer complaints or under internal investigation or external investigation for alleged violation of securities industry rules and regulations. The terminated employee has no legal right to provide input regarding the content of the FINRA Form U-5. Therefore, he or she is at the mercy of the employer and the regulatory oversight of FINRA. When the employer includes misleading or false information on the FINRA Form U-5, it can severely damage the terminated employee’s chances for future employment in the securities industry.
Wrongfully Terminated Securities Industry Employees Take Note
If you work in the securities industry and believe your ex-employer included false and defamatory information on your FINRA Form U-5, you should contact a Kilgore & Kilgore attorney to review the facts of your case. Kilgore & Kilgore attorneys have experience with this type of claim. Kilgore & Kilgore attorneys have also been successful in getting the defamation expunged from a FINRA Form U-5. Winning these claims has given back their lives to broker-dealers hurt by the regulatory process. Click here to connect with a Kilgore & Kilgore attorney Contact Kilgore & Kilgore.
In most cases, you cannot contest a FINRA Form U-5 through a lawsuit in court. You must go through the FINRA arbitration process. Kilgore & Kilgore has several attorneys experienced with the FINRA arbitration process and Texas defamation law.
FINRA Form U-4 and FINRA Form U-5
FINRA has regulatory oversight over all securities industry companies that do business with the public. Every individual who works on securities-related matters is required to register with FINRA by submitting a FINRA Form U-4. By filing a FINRA Form U-4, employees agree to settle all disputes with their employers through the FINRA arbitration process. Additionally, the FINRA Form U-4 authorizes securities industry employers to furnish information regarding the history of all employees at the firm and reasons for termination.
Former Employees with FINRA Form U-5 in Public Files
When an employee is terminated, the securities industry employer is required to state the reasons for termination in a FINRA Form U-5. If the terminated employee violated any securities industry rules or regulations, the employer must provide an explanation of the violations. Also, the employer must explain if the terminated employee was under any internal investigation for the violation. The employer must also disclose whether there are any consumer complaints against the employee. The securities industry employer must file the FINRA Form U-5 within 30 days of the termination. The FINRA Form U-5 is stored in FINRA’s Central Registration Depository (CRD) and made accessible to all FINRA member firms. Together, FINRA Form U-4 and FINRA Form U-5 lay the foundation for how FINRA Form U-5 defamation claims must proceed.
FINRA Form U-5 Defamation
Sometimes, when an employer is unhappy with an employee, the employer places false and defamatory information in the FINRA Form U-5. This can have disastrous consequences for the employee. First, all potential new employers have access to, and will certainly review, the FINRA Form U-5. This makes it difficult, if not impossible, for the terminated employee to get another job in the securities industry. Second, potential customers have access to the FINRA Form U-5. Experienced investors often review this public information. Even when a terminated employee manages to get a new job in the securities industry, it is difficult to recruit new customers. When an employer with a bone to pick fires an employee and puts false information in the FINRA Form U-5 disclosure, it can be devastating. It can sabotage a career. This happens more often than you would think.
Compensatory Damage Awards and Expungement of Defamation from the FINRA Form U-5
The aggrieved ex-employee can take legal measures to claim damages and get the defamatory information removed from his or her FINRA Form U-5. He or she can file a claim against the former employer for defamation. Moreover, he or she can request an expungement of the defamatory information on the FINRA Form U-5. Processing such a claim is different from a typical defamation claim. Not just any attorney can successfully handle such a claim. The FINRA Form U-4 requires that all such claims between FINRA member businesses and their registered employees go through FINRA arbitration proceedings. This includes employment disputes that may have an effect on the professional record of a member firm’s employee—including FINRA Form U-5 defamation claims.
FINRA Form U-4 Provides the Basis for a Defamation Claim
The basis for defamation claims by FINRA Form U-4 employees is the false or inaccurate information reported on a FINRA Form U-5. Employees may also request that FINRA expunge such false information from its Central Registration Depository (CRD) records. Terminated employees must file an arbitration demand with FINRA within six years of the recording date of the FINRA Form U-5 in the CRD. One to three individuals chosen by the parties typically comprise the arbitration panel. It generally takes about one year to complete the arbitration process. FINRA arbitration hearings and the evidentiary record are not open to the public. The only information publicly released are the parties’ names, the nature of the claims, the arbitrator’s conclusory findings, and the remedy granted.
State Law Governs the Right to Damages in Defamation Claims
A FINRA arbitration panel hears and rules on FINRA Form U-5 defamation cases. However, state law governs the legal elements of the claim. This means that state law governs the elements of the defamation claim of the employee. State law also governs the defenses available to the employer. And, state laws are not all the same. Damages may include compensatory damages, punitive damages, lost value of benefits, emotional distress, attorneys’ fees, and a recommendation to expunge or amend the FINRA Form U-5.
Accordingly, attorneys often accompany FINRA Form U-5 defamation claims with other claims including wrongful termination, interference with business opportunities, and breach of contract.
The Absolute Privilege Rule
One of the most important rulings the FINRA arbitration panel will make is whether the employer is entitled to an absolute privilege or qualified privilege under the relevant state law. Due to the mandatory nature of the FINRA Form U-5 disclosure requirements and the public benefits they provide, some state courts have ruled that employers are entitled to an absolute privilege. Absolute privilege means that the person making the statement has the absolute right to make that statement at that time, even if it is defamatory. In other words, the person making the defamatory statement is immune from a defamation lawsuit. This makes it very difficult if not impossible to win a claim against them.
In other states, including Texas, either a qualified privilege applies or the law is unclear. A qualified privilege raises the bar for a wrongfully terminated employee to prove a claim. For example, it may be necessary to show the employer was malicious or reckless rather than merely negligent in the FINRA Form U-5.
Kilgore & Kilgore Attorneys Have Won Damage Awards in FINRA Defamation Claims
Despite the presence of a qualified privilege in many states, FINRA arbitration panels have granted significant monetary damage awards and expungement to aggrieved ex-employees. To obtain such an award is a complex legal process involving FINRA rules and procedures plus state defamation law. Kilgore & Kilgore can provide the legal assistance needed. Kilgore & Kilgore attorneys have won damage awards and expungements through FINRA arbitrations. To learn more about Kilgore & Kilgore’s securities industry and FINRA law practice, click here Kilgore & Kilgore Securities Fraud and FINRA Dispute Practice. To get started on a free review of the facts of your case, click here Contact Kilgore & Kilgore.